3. Statement of cash flows The statement of cash flows categorizes a firm's cash flows according to the nature of the activities that give rise to them (for example, operating, Investing, and financing cash flows) and then further differentiates these activities and cash flows into whether they involve sources and uses of cash. Two methods can be used to construct a statement of cash flows the direct method and the indirect method. Under the indirect method, data from three financial statements are used Under the indirect method, a decrease in an asset account (excluding the cash and cash equivalent account) reflects (or results in) a cash and an increase in a liability or equity account represents and gives rise to a cash A firm engages in a variety of activities that generate cash and require cash payment. The statements below describe examples of these activities, Classify each transaction as to whether it constitutes an operating, an investing, or a financing cash flow. Tomorrow, Aberdeen Petroleum Refiners Corp. will pay cash dividends of $55,000 to its preferred stockholders This transaction is classified as Tomorrow, Florence Fashion Footwear Inc. will close on the sale of its old office building. It is expected to receive $1.25 million for the building net of the sales commission This transaction is classified as Afirm engages in a variety of activities that generate and require cash payment. The statements below describe two examples of these activities Classify each transaction according to its serving as a source of cash to the firm (cash inflow) or a use of cash (cash outflow) Source Use Situation Eastern Gas Pipeline Co, spent $930,000 to purchase a controlling interest (200,000 shares in a competitor. Tomorrow is the last day of a two-week pay period for the 546 employees of Aberdeen Petroleum Refiners Corp. Tomorrow, the wages payable account's current balance of $254,735 will reset to 50 as the wages are paid to the company's workers. The company now owes its employees the most recent week's salary O Grade It Now Save & Continue
