Because the Statement of Cash Flows Only Reflects the Cash

question 7

Essay

Because the statement of cash flows only reflects the cash flows from operating, investing, and financing activities, certain noncash transactions are omitted from the body of the statement.
Required:
Identify the type of activities that are not included in the body of the statement of cash flows, describe the types of transactions involved, and indicate where these items are disclosed on the statement.

---

Definitions:

Inventory Increase

An rise in the quantity or value of goods held by a company for the purpose of sale in the normal course of business.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including the cost of the materials and labor directly involved in creating the good.

Accounts Payable Decrease

A reduction in the amount a company owes to its suppliers or vendors, indicating payments have been made.

Direct Method

A approach to cash flow statement preparation where actual cash receipts and payments are reported, instead of adjusting net income.