 In this presentation, we will take a look at multiple choice questions related to the statement of cash flows. First question, non-cash investing and financing activities are disclosed in 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. Non-cash investing and financing activities are disclosed in A, either a note in the financial statements or a schedule attached to the statement of cash flows. I'll keep that for now. B says a note to the financial statements and C says a schedule attached to the statement of cash flows. So notice that A, C, A, B, and C are all similar because A has both of them included and B are listing them separately. So that makes me think well maybe it's probably one of those three possibly because you know they're similar with that difference. I'm going to keep those there and we're going to go to D, the financing activities section of the statement of cash flows. So non-cash activities isn't just going to be in the financing section. You might think they would because they may include financing. They're really a combination of financing and investing together. That's what usually makes the non-cash thing, but it's not going to be there. It's going to have to be at the end or in some other formats maybe somewhere else entirely. So and then E says the reconciliation of net income on a cruel basis and net income on a cash basis. That's going to be basically the operating section on an indirect method, but that's not going to list non-cash things. So I don't think it's there. So I think it's between A, B, and C. And then so let's go through this again. Non-cash investing and financing activities are disclosed in either A, either a note in the financial statements or a schedule attached to the statement of cash flows or B, a note to the financial statements and C, a schedule attached to the statement of cash flows. So the question then of course is one of these the required form or can we use either of them? And the answer is actually that we can use either of them. So that's what we got. Final answer. Non-cash investing and financing activities are disclosed in either a note in the financial statements or a schedule attached to the statement of cash flows. This is always a little bit confusing. You might ask yourself why is a non-cash thing reported related to the statement of cash flows? And that's really because it kind of relates to an investing and financing activity that got kind of put together. We can think of it as getting a lot of times we can think of it as basically getting something with relation to a financing activity cash and then turning around and using that cash for an investing activity. That's going to be typically the case. In other words, if we financed equipment, we would debit equipment and we would credit notes payable. But we can also kind of think of that what if in two steps we could have said well what if we think about it in terms of we debit cash and credit the notes payable to get the money and then we turned around and took that money that would be a financing activity and then we turned around and took that money bought equipment which means we would debit cash I mean debit equipment and credit the cash that would be an investing activity. So what we really did is kind of combined those together and didn't do the two steps of the cash changing hands but that's why it's still kind of part of the cash flow statement. Next question. A statement of cash flows explains the differences between the beginning and ending balances of a net income and revenue, b equity and retained earnings, c cash and cash equivalents, d working capital on a cash basis and e cash and current assets. Let's go through this again using the process of elimination. A statement of cash flows explains the differences between the beginning and ending balances of either a net income and revenue, net income and revenue. I don't think that's going to be it. Those look like two items that are on the income statement. So I don't see they're not really cash flow related. He says equity and retained earnings. Those are two items that would be in a statement of equity possibly or you know on the balance sheet retained earnings would be in the balance sheet not probably not the statement of cash flows. C says cash and cash equivalents so you would think that that would be on the statement of cash flows that seems pretty reasonable. D says working capital on a cash basis. Working capital is kind of a ratio or analysis type calculation. So I don't think that's what we're working with on the statement of cash flows. And then he says cash and current assets. And we may think cash cash is involved there. So let's leave it with c and e read it through one more time. A statement of cash flows explains the differences between the beginning and ending balances of either C or E either cash and cash equivalents or cash and current assets. And it looks like we're dealing with the beginning and ending of cash and cash equivalents. So C is going to be the one here. Current assets is not going to be part of cash. We're looking just for the cash and the cash equivalent. So final answer. A statement of cash flows explains the differences between the beginning and ending balances of C cash and cash equivalents. Next question. The direct method A separately lists each item of operating cash receipts and cash payments. B reconciles net income to net cash provided by operating activities. C reports a different amount of cash flows from operations than if the indirect method is used. D results in a differently formatted investing activities section or E is required by FASB FASB. Let's go through this again. The direct method A separately lists each item of operating cash receipts and cash payments. So that sounds like it could be and I'll keep that for now. B says reconciles net income to net cash provided by operating activities. Well we know that cash provided by operating activities is the bottom line of the portion of the statement of cash flow. So I'll keep that for now. And C says reports a different amount of cash flows from operating operations than the indirect method is used. That's not the case because both methods direct and indirect should result in the same bottom line just different methods to get there. So it's not C. D says results in a different formatted investing activities section. And note that the methods between the direct and indirect only deal with the operating activities. It should not change investing or financing therefore D is not correct. E says is required by FASB. And typically the direct method I don't believe is required by FASB. Usually the indirect method is often required. And I think mainly because it has the reconciliation between net income and cash provided by operations. But so the FASB kind of recommends the direct method but often you know often it's a requirement to do the in that may recommend the direct method as well. But it's often required to have the you know the indirect method. So let's go through it's between A and B. The direct method either A separately lists each item of operating cash receipts and cash payments or B reconciles net income to net cash provided by operating activities. Of these two B is the indirect method when we do the reconciliation between net income and cash provided by operating activities. So so A is actually the answer because it's the one that's going to separately list out each item. It's going to take basically the income statement revenue minus expenses convert that to more of a cash basis cash provided by customers cash received from customers minus cash outflows for expenses. Next question. Interest received on a note receivable is classified as A. financing activity. B. investing activity. C. operating activity. D. direct activities or E. indirect activities. Let's go through this again using the process of elimination interest received on note receivable is classified as and we could probably eliminate D and E here because we're probably looking to categorize this in one of our three categories of the statement of cash flows those being the operating investing or financing and therefore D and E will eliminate because they look like kind of fillers over and above the three main categories. So then I would write down the journal entry here. So interest received on note receivable that would mean that we got cash typically and we would have something like interest revenue. So what would happen here is of course we had a note receivable people owe us money and they're paying rent on it. They're paying interest on it. So we're getting cash for them using the money. So are any of these either of these going to be are either of these going to be income statement accounts. Yeah. The interest revenue is and therefore we would typically think of that as an operating activities. Now this one's a little confusing oftentimes because we think well if there's a note maybe there's a note maybe that has to do with investing or financing but that the the interest we're getting on it is happening is what's happening over time and typically something we would include on the income statement as normal as kind of part of operating operations and therefore also be recorded on the operating activities for the statement of cash flows. So fine Lancer interest received on note receivable is classified as C operating activities.