Question

A household functions like a small business. In both the household and business settings, the importance of stable cash flow cannot be emphasized enough. Households and businesses must maintain good cash flow to meet their continued obligations should something happen or if there is an economic downturn. Planning for both short- and long-term cash needs is important to both the household entity and the business entity.

Identify the three categories that appear on a Statement of Cash Flows and give two examples of items that are shown under each particular category. (9 points)

Answer 1

• The three categories that appear on a Statement of Cash Flows are”

---Cash Flows from Operating Activities
---Cash Flows from Investing Activities
---Cash Flows from Financing Activities

• Two examples that can be shown under each category:

---Cash flow from operating activities example:
Cash received from sales revenue.
Cash received from customers.
Cash paid for expenses.

---Cash flow from Investing activities example:
Cash paid for purchase of Equipment
Cash received from Sale of Land.

---Cash flows from Financing activities example:
Cash received from common stock issued
Cash paid for dividends.