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

• A. Analyzing changes in balance sheet accounts to determine cash flows
• B. Identifying cash inflows and outflows from operating, investing, and financing activities
• C. Adjusting net income for non-cash items such as depreciation
• D. Calculating ending inventory using the lower of cost or market method

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 during a specific period, categorized into operating, investing, and financing activities.
2. Step 2: Recognize the processes involved in preparing the statement of cash flows. These include analyzing changes in balance sheet accounts, identifying cash inflows and outflows, and adjusting net income for non-cash items like depreciation.
3. Step 3: Note that calculating ending inventory using the lower of cost or market method is a process related to inventory valuation, which is part of the preparation of the balance sheet or income statement, not the statement of cash flows.
4. Step 4: Compare the listed activities to determine which one is unrelated to the preparation of the statement of cash flows. The unrelated activity is the calculation of ending inventory using the lower of cost or market method.
5. Step 5: Conclude that the correct answer is the activity that does not contribute to the preparation of the statement of cash flows, which is calculating ending inventory using the lower of cost or market method.