Complete a 2-part assessment in which you classify cash inflows and outflows and prepare a cash flow statement. The balance sheet and income statement do not necessarily show a complete p

Complete a 2-part assessment in which you classify cash inflows and outflows and prepare a cash flow statement.

The balance sheet and income statement do not necessarily show a complete picture of the financial condition of an organization. In most organizations cash is king, and without a sizable amount of cash, an organization can become insolvent (that is, not having enough ready cash to meet its current obligations or purchase merchandise or materials). When this happens, creditors, bankers, and other external stakeholders (people and organizations that have a vested interest in the survival of a business) might become impatient and force the business into bankruptcy.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Define accounting and its application to accounting principles.
  • Analyze accounting data to classify cash inflow and outflows.
• Competency 2: Apply accounting cycle strategies to manage business financial events.
  • Apply the appropriate activity for each business transaction.
• Competency 3: Prepare financial statements from accounting system data.
  • Prepare a cash flow statement using appropriate financial data.

Questions to Consider

To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

• What are six terms that you consider to be associated with the income statement (revenues and expenses)?
• Consider why these items should be included as a revenue or expense in a business organization.

Assessment Instructions

This assessment includes two parts. Complete both parts using the templates provided. Both templates are linked in the Resources under the Required Resources heading. Submit both completed templates for the assessment.

Part 1: Types of Cash Inflows and Outflows

You know that the cash flow statement classifies cash receipts and cash payments as operating, investing, and financing activities. Before preparing the cash flow statement, accounting data must be analyzed to locate transactions in both the cash account and other locations. After the transactions have been located, it should be determined whether each one affects operating, investing, or financing cash flow. Last, whether the transaction results in a cash inflow or outflow must be ascertained. Accountants consider this statement to be foundational for a business to continuously operate.

For this part of the assessment, use the Assessment 3, Part 1 Template to classify each of the following cash inflows and outflows as operating, investing, or financing activities:

1. Sale of a piece of company equipment.
2. Sale of common stock.
3. Payment to suppliers for merchandise purchased.
4. Payment to lenders for interest on note payable.
5. Sale of investments in other companies.
6. Purchase of land to expand plant size.
7. Payment to stockholders as cash dividends.
8. Sale of goods or services.
9. Payment to employees for wages and salaries.
10. Lending of money to other business entities.
11. Payment to government for property and income taxes.
12. Collection of principal on loans to other entities.
13. Interest and dividends received.
14. Issue of bonds to support company growth.
15. Purchase of investments in debt or equity of other entities.
16. Payment to other entities to cover expenses incurred.
17. Buyback of company stock from investors.

Part 2: Cash Flow Statement Preparation

The cash flow statement is an important, and often overlooked, financial statement. However, it can provide important data for use by internal organization management. By analyzing the balance sheet and income statement, the accountant can then prepare the statement and share the results with both internal and external users.

Use the Assessment 3, Part 2 Template to determine the appropriate activity (operating, investing, or financing) for each transaction listed for Skylar Enterprises, Inc., and prepare the cash flow statement using the indirect method in good form for reporting. Data is provided in the Information worksheet in the template; complete the statement of cash flow in the Cash Flow Statement worksheet. Use the suggested materials in the Resources if you need more information on preparing cash flow statements