Q1TI - Horngren'S Financial And Managerial Accounting

Question

Identify each item as operating (O), investing (I), financing (F), or non-cash (N). 

1. Cash receipt from the sale of equipment 

2. Cash payment for salaries 

3. Cash receipt from the collection of long-term notes receivable 

4. Purchase of equipment in exchange for notes payable 

5. Cash receipt from the issuance of common stock

Step-by-Step Solution

Answer

Item	Classification
Cash receipt from the sale of equipment	(I)
Cash payment for salaries	(O)
Cash receipt from the collection of long-term notes receivable	(I)
Purchase of equipment in exchange for notes payable	(N)
Cash receipt from the issuance of common stock	(F)

Step 1: Definition of Statement of Cash Flow

The summarized statement prepared for reflecting all the transactions that either lead to an inflow of cash or its outflow is known as the statement of cash flow. 

Step 2: Different activities in the statement of cash flow

1. Operating activities include the cash flow from the business entity's basic operations, for example, sales revenue, payment for purchases, salaries, and other expenses.
2. When the cash balance increases or decreases because of the sale and purchase of the fixed assets, it will be included in the investing activities.
3. The activities in which neither cash payments are made nor cash receipts are generated are non-cash transactions.
4. Financing activities include the increase and decrease in the business entity's cash balance because of the securities' issue and redemption.