For Each Of The Transactions Listed Below, Indicate Whether

25 For Each Of The Transactions Listed Below Indicate Whether It I

25. For each of the transactions listed below, indicate whether it is an operating (O), investing (I), or financing (F) activity on the statement of cash flows. Also, indicate if the transaction increases (+) or decreases (-) cash.

Transaction A: Paid dividends to the owners

Transaction B: Purchased equipment by paying cash

Transaction C: Issued stock for cash

Transaction D: Paid wages to employees

Transaction E: Repaid the bank loan

Transaction F: Collected cash on account from customers

Paper For Above instruction

Understanding the classification of cash flows is essential in preparing a statement of cash flows for any organization. Cash flows are categorized into three main activities: operating, investing, and financing. Each transaction affects these categories differently, either increasing or decreasing cash balances. This paper will analyze each listed transaction, classify it appropriately, and indicate the effect on cash.

Transaction A: Paid dividends to the owners

Dividends paid to owners are considered a financing activity because they involve cash outflows related to raising capital and returning earnings to shareholders. When a company pays dividends, it reduces cash reserves. Therefore, this transaction is classified as a financing (F) activity, and it decreases (-) cash.

In summary: F, -

Transaction B: Purchased equipment by paying cash

The purchase of equipment is an investing activity because it involves the acquisition of long-term assets that are expected to benefit the company over several years. Cash paid for equipment decreases cash on hand. Hence, this transaction is classified as investing (I), and it decreases (-) cash.

In summary: I, -

Transaction C: Issued stock for cash

Issuing stock involves raising capital from shareholders and is a financing activity. It results in an inflow of cash when the stock is issued. Therefore, this transaction is classified as a financing (F) activity, and it increases (+) cash.

In summary: F, +

Transaction D: Paid wages to employees

Paying wages to employees is part of the core operating activities of a business, reflecting the payment of day-to-day expenses necessary for operations. It results in a cash outflow and is categorized as an operating (O) activity. This decreases (-) cash.

In summary: O, -

Transaction E: Repaid the bank loan

Repaying a bank loan involves paying back borrowed funds, which is a financing activity. It impacts the company's capital structure and results in a cash outflow. Therefore, this transaction is classified as financing (F), and it decreases (-) cash.

In summary: F, -

Transaction F: Collected cash on account from customers

Collection of cash from customers on account pertains to operating activities, reflecting the core revenue-generating activities of the business. This inflow increases cash and is categorized as operating (O). It increases (+) cash.

In summary: O, +

Conclusion

Classifying cash flows accurately in the statement of cash flows provides valuable insights into a company's financial health and operational efficiency. Transactions such as paying dividends and repaying loans are financing activities; purchasing equipment is investing activity; collecting cash from customers and paying wages are operating activities. Recognizing whether these transactions increase or decrease cash helps stakeholders understand how the company manages its cash position over time.

References

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