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tlinamay · Mar 7, 2010, 07:12 PM

I am having a hard time understanding what goes under what category for cash flow. I attached the 5 questions with my answers, the data, and where I put the information to get my answers. Could someone review and let me know if this is correct or not. I am not asking for answers but maybe some layman's terms that may help me!?

Cash Flow Computations
From the following selected data, compute:
1. Net cash flow provided (used) by operating activities. 78000
2. Net cash flow provided (used) by investing activities. (10000)
3. Net cash flow provided (used) by financing activities. (60000)
4. Net increase (decrease) in cash during the year. 8000
5. The cash balance at the end of the year. 394000
Cash flow+ operating activities+ investing activities+ financing activities= end of the year balance. Net increase: 386000-394000=8000 increase.

Cash receipts from:
Customers.. . $270,000…1
Investments by owners.. . 54,000…2
Sale of building.. . 90,000…2
Proceeds from bank loan.. . 60,000…2
Cash payments for:
Wages.. . $ 82,000…1
Utilities.. . 3,000…1
Advertising.. . 4,000…1
Rent.. . 36,000…1
Taxes.. . 67,000…1
Dividends.. . 20,000…3
Repayment of principal on loan.. . 40,000…3
Purchase of land.. . 106,000…2
Cash balance at beginning of year.. . $386,000

Any Help is appreciated.

morgaine300 · Mar 9, 2010, 04:05 AM

Some of this is actually simpler than it looks. Remember your accounting equation:
Assets = Liabilities + Equity

Assets are your investments, so those are investing activities.

The right side of the equation is how you finance: either with debt (liabilities) or equity (ownership).

So look at things like the investment of owners. This is not an "investment" because that means an investment the company is making. The investment of owners is not an investment OF the company, but rather OF the owners INTO the company. i.e. equity. It's a way to finance a company.

Also the bank loan - you cannot say borrowing is one type of activity and paying it back is another type of activity. Both are the loan - same activity. Bank loan: liability.

Now in looking at this, we have to consider that day-to-day operations are not considered part of investing and financing. All your #1's are correct as those are just basic day-to-day operating activities. But the specific things I mentioned above are incorrect.

tlinamay · Mar 9, 2010, 06:22 PM

Thank you. That makes so much more sense!

morgaine300 · Mar 10, 2010, 04:15 AM

You're welcome. :-)