Zentak corporation engaged in the following transactions. For each transaction, indicate where, if at all, it woulbe classified on the statement of cash flows. Assume the indirect method is used. Purchased treasury stock with cash.

a. operating activities section
b. investing activities section
c. financing activities section
d. does not represent a cash flow

What do you think?

For each of the following transactions, indicate where, if at all, it would be classified on the statement of cash flows. Assume the indirect method is used.

For each transaction, indicate where, if at all, it woulbe classified on the statement of cash flows. Assume the indirect method is used. Purchased treasury stock with cash.

a. operating activities section
b. investing activities section
c. financing activities section
d. does not represent a cash flow[/QUOTE]

We are not here just to give you answers to your homework problems, so I'm not going to tell you which one it is.

However, I'll explain the concept behind it so that you can hopefully figure it out for yourself. Think of your accounting equation: Assets = Liabilities + Equity.

The left side, assets, are investing activities. These are the resources of the company. So all of your assets (except current ones - more on that in a sec) are considered investing activities.

The right side of that equation is the debt and equity of the company. That's the financing. Companies finance their resources with borrowing and with ownership. So all liabilities (again, except for current ones) and all equity accounts are considered financing activities.

It does not matter whether the cash is incoming or outgoing -- it has to be related to that type of activity. (That is, even though paying a loan back is not "financing" the company, it's still a financing-related activity.)

Now, as to the current assets and current liabilities. Those are not included in the above. Those would be operating activities. That's because they're related to the day-to-day operations. Operations is your sales activity, and purchasing inventory, etc. So the change in balance of receivables, for instance, is related to the sales activity. And that's a current asset. Same with current liabilities -- it's just short-term stuff related to your day-to-day operations.

So in summary, the left side, assets, are investing activities, and the right side, with liabilities and equity, is financing activities. With the exception that current assets and liabilities are operating activities. And... unfortunately, just to make things difficult, there's one exception to that rule. Dividends payable is a current liability, but is still a financing activity because it's related to stock and not to operations. So if you can learn this basic summary, it'll be a lot easier to figure these out.