Question asked by professor:Generally speaking is the level of detail covered in the operating section that specific or would someone be more likely to review the income statement for the items you mentioned? If you were a potential investor and were reviewing the operating section of the cash flow statement of a company, what wouldyou be looking for and how would you utilize the data contained in the statement?

"The operating activities give explanation as to what is being paid in things like salaries and supplies."

^^^^That was the question asked my professor that I need answered as soon as possible. He was responding to my response to a discussion question. I am not that proficient in accounting, and I am taking ACC/291 Principles of Accounting II. Can someone please help me? I need someone very knowledgeable in the subject of accounting. My initial response to the discussion question is the following:

Good morning,

Why are companies required to prepare a statement of cash flows?

Companies are required to prepare a statement of cash flows because unlike the balance sheet, income statement, and retained earnings statement, it presents a detailed summary of where their cash came from, what it was used for, and what was the change in the cash balance (Kimmel, 2013, "The Statements of Cash Flows: Usefulness and Format", p. 626). The primary purpose of the statement of cash flows complements the other financial statements by providing information about cash receipts, cash payments, and the net change in cash resulting from operating, investing, and financing activities of a company during a period. Unfortunately, net income can sometimes be a distorted figure, so to better understand a company's financial health, and whether it can continue to fund its operations(particularly its ability to pay bills),creditors and investors would prefer to review the statement of cash flows.

Why is the statement of cash flows divided into three sections?

The statement of cash flows is divided into three sections because I think this makes it easier to see where the cash is mostly used, andtells others, whether the transaction (known as an activity) was related to operations, investing or financing. Also, this will help the company as well as investors and creditors understand if the cash is being used in the most appropriate and effective manner.

What does each section tell you about a company's operations?

The operating activities give explanation as to what is being paid in things like salaries and supplies. It involves income statement items, and it paints a picture of the company expenses to continue operation. The investment section gives insight as to what the company spends on investments and securities. It involves investments and long-term asset items. Some of the investment can include things purchases of equipment and land. Lastly, the financing section covers the cash obtained from issuing debt and the repayment of the amounts borrowed while clarifying the exchange of cash from bonds, stocks, and dividends (Kimmel, 2013, "Classification of Cash Flows", p. 627). It involves long-term liability and stockholders' equity items. Also, I think without this information a company could end up overspending on their investment which could leave them short in more important areas such as operating activities.

Reference:

Kimmel, P., Weygandt, J.J., & Kieso, D.E. (2013).Financial Accounting: Tools for Business Decision Making(7th ed.). Retrieved from The University of Phoenix eBook Collection database.

Thank you very much, and have a wonderful day.

REPEATED THE QUESTION: My professor responded to my response above by saying the following:

Generally speaking is the level of detail covered in the operating section that specific or would someone be more likely to review the income statement for the items you mentioned? If you were a potential investor and were reviewing the operating section of the cash flow statement of a company, what wouldyou be looking for and how would you utilize the data contained in the statement?

"The operating activities give explanation as to what is being paid in things like salaries and supplies."

^^^Can someone please provide me a prompt, but substantive response to his question? Please provide a full substantive answer, thank you. I just repeated the question from the top at the bottom.

I look forward to receiving help soon. Thank you very much, and have a wonderful morning/night.