Statement of cash flows

The statement of cash flows categorizes a firms 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, an increase in an asset account (excluding the cash and cash equivalent account) reflects (or results in) a cashoutflow , and a decrease 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 boxes below describe examples of these activities. Classify each transaction as to whether it constitutes an operating, an investing, or a financing cash flow.

Last month, Talledaga Trucking Co. relaxed its credit standards and the characteristics of the customers who would qualify for credit. Accounts receivable increased by $257,982. This transaction is classified asa financing cash flow .

Yesterday, Talledaga Trucking Co. repaid $125,000 of bonds payable for $126,875. This transaction is classified as .

A firm engages in a variety of activities that generate and require cash payment. The boxes 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).

Situation	Source	Use
Talledaga Trucking Co. spent $930,000 to purchase a controlling interest (200,000 shares) in a competitor.
Last month, Collins Construction Co. purchased $23,452 worth of office supplies on credit.