Which of the following is NOT involved in the preparation of the statement of cash flows?

• A. Identifying cash inflows and outflows from operating, investing, and financing activities
• B. Classifying cash transactions according to their nature
• C. Adjusting net income for non-cash expenses and changes in working capital
• D. Calculating depreciation expense for the income statement

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the purpose of the statement of cash flows. It is a financial statement that provides information about cash inflows and outflows categorized into operating, investing, and financing activities.
2. Step 2: Recognize the key processes involved in preparing the statement of cash flows. These include identifying cash transactions, classifying them according to their nature, and adjusting net income for non-cash expenses and changes in working capital.
3. Step 3: Note that depreciation expense is a non-cash item. While it is adjusted in the preparation of the statement of cash flows, calculating depreciation expense itself is part of preparing the income statement, not the statement of cash flows.
4. Step 4: Distinguish between the tasks specific to the statement of cash flows and those related to other financial statements. Calculating depreciation expense is not directly involved in the preparation of the statement of cash flows.
5. Step 5: Conclude that the correct answer is 'Calculating depreciation expense for the income statement,' as it is not part of the preparation process for the statement of cash flows.