 In this presentation, we will take a look at multiple choice questions related to statement of cash flows. First question, which item below is not an investing activity? Support a counting instruction by clicking the link below, giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Let's go through this again using the process of elimination, which item below is not an investing activity? A. Purchase of Equipment Now if we go through these, we might want to think of each one and think of the journal entry for each one and go through our thought process, which means the purchase of equipment would typically be a debit to equipment and a credit to cash. Is there any income statement account involved there? No. So it's not operating activity. Did we buy any long term asset? Yeah. We basically invested in equipment. So that would be an investing activity and therefore not here because that would be included in investing activities and we're looking for someone, something that is not. So B says purchase of land and we can go through the same thought process. What would be the journal entry? We would debit land and credit cash and or equit and or notes payable. But in any case, none of those accounts are going to be an income statement account. So it doesn't look like it's going to be something involving the income statement and therefore not operating activities. So did we purchase a long term asset? We did. We purchased land. So that looks like it's investing. So that doesn't look like the one. And then C says issuing common stock. And if we go through that one, we can think well that's going to be a debit to cash and a credit to common stock and a credit possibly to additional paid in capital. Is there any income statement involved there? Any income statement account? No. There's no there's no revenue or expense there. Did we buy anything? In this case, we didn't write we're issuing the stock. We're not buying stock from a separate company. So what we're getting is cash. Therefore it's not really investing. And this looks like it's probably a financing activity. And that's not an investing activity. So C looks good. D says sale of equipment. And if we think about that, we're going to say, well, what's usually the journal entry, we're going to debit cash and and then we're going to credit equipment, possibly debit accumulated depreciation. And then maybe there's a gain or loss. Now the gain or loss is an income statement account. So we might think of, well, the gain or loss is an income statement account. Maybe it's in the operating activities. But typically it's not an operating activities. It's selling. Did we sell something that's a long term asset? We did. We sold the equipment. So typically that's going to be investing is a little bit possibly a little bit more confusing to think about the sale of equipment, as opposed to the purchase as being investing. But if the purchase of equipment is investing, then the sale possibly we can think also investing. And then E says sale of investments. And we can go through the same process. We're selling investments, getting cash, selling the investment. But again, this seems more straightforward as an investing activity, considering we're selling an investment, something like stocks and bonds, most likely. So it's not E it looks like then C would be the answer. Which below which item below is not an investing activity? C issuing common stock. That's a financing activity. Next question. The statement of cash flows is not the best financial statement to use for which of the following. A, determining how much of the company's revenue have been retained. B, determining the source of cash received. C, determining the difference between net income and net operating cash flows. D, determining the source of cash used to finance investing activities. And E, determining the source of cash used for debt repayments. Okay, let's go through this again. The statement of cash flows is not the best financial statement to use for which of the following. A, determining how much of the company's revenue have been earned have been retained. And so that one, hmm, I don't know about that. I don't see any cash flows there. So I'll keep that as an I don't know for now. B says determining the source of cash received. Now that seems like a cash flow. We're talking about cash being received and the source of it. So I would think that that's kind of something that the cash flow statement would probably be telling us what's going on with that. So I'm going to say that one's included across that out. C says determining the difference between net income and net operating cash flows. And you know, this could be the case, right? So I'm going to keep that for now. I'm not totally sure on that because it kind of differs on we might think that that differs between what method we're using a direct method or indirect method. D says determining the source of cash used to finance investing activities. And again, that has to do with cash being used cash flows. So I would think cash flows would be on the cash flow statement. So I'm going to say that's probably on the cash flow statement. E says determining the source of cash used for debt repayments. And again, cash used is a flow term. So I would think that that would be on the cash flow and not our answer. So we're here between A and C. The statement of cash flows is not the best financial statement to use for which of the following either A or C either determining how much of the company's revenue have been retained or C determining the difference between net income and net operating cash flows. Between those two, I would think that A would be more correct because C, although this sounds like the direct method, given us exactly what the difference is between net income and net cash provided by and net operating cash flows, that seems like the indirect method that would be used there. And the direct method is still a statement of cash flows, although it doesn't seem like it has exactly the same reconciliation. So this seems like an answer for like an indirect method, but it's a seems to not be the correct answer because it determines how much of the company's revenue have been retained. And we don't really know that because revenue isn't a cash flow term, that's an accrual term, typically. And when we talk, think about the retaining of revenue, we're usually thinking about a balance sheet account or statement of retained earnings account, which is going to tell us that it's going to be how much that's a point in time term, like a balance sheet account, how much of the revenue is still in the company has been retained retained earnings, which is a point in time type of term, not a flow term. So of the two, I would think that A would not be on the statement of cash flow. So final answer, the statement of cash flows is not the best financial statement to use for which of the following. A, determining how much of the company's revenue have been retained, that would be retained earnings, balance sheet or statement of retained earnings that would be used there. Next question. The payment of cash dividends is classified as either A financing activity, B investing activities, C operating activities, D direct activities, E indirect activities. And so once again, these are probably we can narrow these down to A, B and C financing operating or investing. And because those are our major components of the cash flow statement, and it looks like D and E are probably just parts they're trying to make a couple answers on the on the multiple choice. So I think we can narrow down to the first three, go through this again, the payment of cash dividends. Now, whenever they give us the information up here and ask for the category, then I would go through our series of questions making the journal entry for a cash dividend and go through our series of questions. So a cash dividend, what would happen on the journal entry? Well, in essence, the bottom line of it would would be that we would say that cash is going down, we're going to pay cash, and it's going to come out of retained earnings or dividends, which will ultimately come out of retained earnings. So the debit's going to be retained earnings. Now, are either of those accounts an income statement account? There's no revenue or expense and therefore no, so it's not probably the operating activity. Do either of those accounts are we purchasing or selling a long term, you know, asset, like either an investment or investment in a long term asset? No, right here, what we're doing is we're reducing retained earnings or giving money to the owner in a dividend. So that means it's probably not investing, and therefore it's going to be financing. This one can be a little bit tricky, because when you think of financing, we often it makes me think of well, we're getting money somehow. But of course, this is kind of us giving money back for financing that happened in the past, meaning we're giving money back to the owners. Why? Because the owners have invested in the company in the past, we're returning some return on the investment that has been given to us from the owners. So that's why it could be thought of one reason it could be thought of as a financing activity. So final answer, the payment of cash dividends is classified as a financing activities.