Multiple Choice
Which of the following statements about the statement of cash flows is correct?
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13. Statement of Cash Flows
Introduction to the Statement of Cash Flows
Multiple Choice
How is the cash paid to purchase land reported in the statement of cash flows?
A
As an outflow in the operating activities section
B
As an outflow in the financing activities section
C
As an outflow in the investing activities section
D
As a non-cash transaction disclosed in the notes
Verified step by step guidance1
Understand the purpose of the statement of cash flows: It categorizes cash transactions into operating, investing, and financing activities to show how cash is generated and used during a period.
Identify the nature of the transaction: Purchasing land involves acquiring a long-term asset, which is classified as an investing activity because it pertains to the acquisition or disposal of investments and fixed assets.
Determine the cash flow direction: Since cash is paid to purchase the land, it represents a cash outflow, reducing the company's cash balance.
Locate the appropriate section in the statement of cash flows: Cash outflows related to the purchase of long-term assets, such as land, are reported in the investing activities section.
Note any additional disclosures: If the transaction involves non-cash elements (e.g., exchanging assets or issuing stock), these are disclosed in the notes to the financial statements rather than directly in the cash flow statement.
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