1.How would the following items be classified in the statement of cash flows for
ID: 2456514 • Letter: 1
Question
1.How would the following items be classified in the statement of cash flows for an events management business?
(i) Payment of $800 for custom printed invitations.
(ii) Takings of $5,000 from clients for the month.
(iii) Capital paid into the business by the owner of the events management business.
Choose one answer.
(i) Investing outflow.
(ii) Operating inflow.
(iii) Financing inflow
(i) Operating outflow.
(ii) Operating inflow.
(iii) Financing inflow.
(i) Operating inflow.
(ii) Operating outflow.
(iii) Investing inflow.
(i) Operating outflow.
(ii) Operating inflow.
(iii) Does not appear in the statement of cash flows.
(i) Investing inflow.
(ii) Operating inflow.
(iii) Investing outflow.
2.
Depreciation will appear in which section of the statement of cash flows?
Choose one answer.
Planning activities.
Financing activities section.
Operating activities section.
Operating activities.
Investing activities section.
Depreciation of plant and equipment does not appear on the statement of cash flows.
a.(i) Investing outflow.
(ii) Operating inflow.
(iii) Financing inflow
b.(i) Operating outflow.
(ii) Operating inflow.
(iii) Financing inflow.
c.(i) Operating inflow.
(ii) Operating outflow.
(iii) Investing inflow.
d.(i) Operating outflow.
(ii) Operating inflow.
(iii) Does not appear in the statement of cash flows.
e.(i) Investing inflow.
(ii) Operating inflow.
(iii) Investing outflow.
2.
Depreciation will appear in which section of the statement of cash flows?
Choose one answer.
a.Planning activities.
b.Financing activities section.
c.Operating activities section.
Operating activities.
d.Investing activities section.
e.Depreciation of plant and equipment does not appear on the statement of cash flows.
Explanation / Answer
(i) Payment of $800 for custom printed invitations - Operating activity
(ii) Takings of $5,000 from clients for the month - Operating activity
(iii) Capital paid into the business by the owner of the events management business - Financing activity
Therefore, option b is correct answer.
If we follow direct method, depreciation is no need to shown in cash flow statement as it is non-cash activity. Hence, option e is correct.
If we follow indirect method, there is an adjustment regarding depreciation that should be added to net income in operating activities section.
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