Multiple Choice
Which of the following best describes the direct method of reporting operating cash flows on the statement of cash flows?
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13. Statement of Cash Flows
Introduction to the Statement of Cash Flows
Multiple Choice
In which section of the statement of cash flows would the cash received from the sale of equipment be reported?
A
Supplemental disclosures
B
Investing activities
C
Financing activities
D
Operating activities
Verified step by step guidance1
Understand the purpose of the statement of cash flows: It categorizes cash inflows and outflows into three main sections—operating activities, investing activities, and financing activities.
Review the definition of investing activities: These include transactions involving the acquisition or disposal of long-term assets, such as property, plant, and equipment.
Identify the nature of the transaction: The sale of equipment is a disposal of a long-term asset, which falls under investing activities.
Consider the cash flow impact: Cash received from the sale of equipment represents an inflow of cash, which is reported in the investing activities section.
Supplemental disclosures are not a section of the statement of cash flows but provide additional information about non-cash transactions or other relevant details. Therefore, the correct section for this transaction is investing activities.
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