Multiple Choice
In preparing a company's statement of cash flows, which of the following activities is classified as an investing activity?
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13. Statement of Cash Flows
Introduction to the Statement of Cash Flows
Multiple Choice
Which of the following best explains how a spreadsheet can assist a company in preparing a statement of cash flows?
A
It automatically generates journal entries for all cash transactions.
B
It helps organize and classify cash transactions into operating, investing, and financing activities.
C
It replaces the need for supporting documentation for cash receipts and payments.
D
It eliminates the need to reconcile net income to net cash provided by operating activities.
Verified step by step guidance1
Understand the purpose of a statement of cash flows: It provides information about a company's cash inflows and outflows, categorized into operating, investing, and financing activities.
Recognize the role of a spreadsheet: A spreadsheet is a tool that helps organize and classify data systematically, making it easier to track and analyze cash transactions.
Identify the key activities in the statement of cash flows: Operating activities involve day-to-day business operations, investing activities relate to asset purchases and sales, and financing activities pertain to borrowing and equity transactions.
Explain how a spreadsheet assists in classification: By using rows and columns, a spreadsheet allows the user to sort cash transactions into the appropriate categories (operating, investing, financing) based on their nature.
Clarify the limitations of a spreadsheet: While it helps organize and classify transactions, it does not replace journal entries, supporting documentation, or the reconciliation process for net income to net cash provided by operating activities.
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