The statement of cash flows communicates the sources and uses of cash of an entity
for a specific period. The statement is divided into three sections:
Operating activities include cash provided by or used within the normal income-
producing (operational) activities. These transactions involve cash and are related to
transactions that are reported on the income statement. Examples include cash
received from customers (from sales or service revenue), cash paid to suppliers (for
the purchase of inventory), cash paid for operating expenses (including salaries, rent,
insurance, and others), cash paid for interest, and cash paid for taxes.
Investing activities include the purchase and sale of non-current assets, investments
(excluding trading securities), and the lending and collection of loans. These
transactions involve the purchase and sale of assets (not including merchandise
inventory, trading securities, and cash equivalents). Examples include proceeds from
the sale of, or cash used to purchase, equipment,
Financing activities include the issuance of stock, issuance and retirement of bonds,
long-term debt and current non-operating debt, dividends paid to stockholders, and
treasury stock transactions. These transactions involve the issuance and retirement of
debt and equity and the return of resources to the stockholders (repurchase of
treasury stock and payment of dividends). Examples include issuance of common
stock, preferred stock, bonds and other debt; purchase of treasury stock; retirement of
debt; and payment of dividends.
Note: These solutions relate to the statement of cash flows, direct method.
Purchased supplies on account:
The purchase of supplies on account does not involve cash, so it would not
appear in the statement of cash flows.