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Which of the following best describes the direct method of reporting operating cash flows on the statement of cash flows?
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13. Statement of Cash Flows
Introduction to the Statement of Cash Flows
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In which section of the statement of cash flows would the cash received from the sale of equipment be reported?
A
Supplemental disclosures
B
Investing activities
C
Financing activities
D
Operating activities
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Understand the purpose of the statement of cash flows: It categorizes cash inflows and outflows into three main sections—operating activities, investing activities, and financing activities.
Review the definition of investing activities: These include transactions involving the acquisition or disposal of long-term assets, such as property, plant, and equipment.
Identify the nature of the transaction: The sale of equipment is a disposal of a long-term asset, which falls under investing activities.
Consider the cash flow impact: Cash received from the sale of equipment represents an inflow of cash, which is reported in the investing activities section.
Supplemental disclosures are not a section of the statement of cash flows but provide additional information about non-cash transactions or other relevant details. Therefore, the correct section for this transaction is investing activities.
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