Ascertainment of Cash Flow from Investing and Financing Activities

Concept First

Cash flow from investing activities and cash flow from financing activities are the two remaining sections of a cash flow statement (after operating activities). The core rule is: every major item of gross cash receipt and gross cash payment must be shown separately under these headings. You cannot net them off unless the standard specifically allows it. The textbook gives two worked illustrations to show exactly how to compute these figures from balance sheet data and additional information.

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The textbook's Illustrations 5 and 6, and its "Do it Yourself" practice box, now live in this chapter's Illustrations & practice tab, alongside their worked solutions.

Key Accounting Treatment Summary

• Sale of asset: Debit Cash (with sale proceeds), Debit Accumulated Depreciation (with accumulated depreciation on asset sold), Credit Asset Account (with cost), and Credit Statement of Profit and Loss (with profit on sale) or Debit it (with loss on sale). The cash flow statement shows only the sale proceeds under investing activities.
• Purchase of asset: Debit Asset Account, Credit Cash. The cash flow statement shows the full purchase price under investing activities.
• Loan repayment: Debit Loan Account, Credit Cash. Shown as a cash outflow under financing activities.
• New loan taken: Debit Cash, Credit Loan Account. Shown as a cash inflow under financing activities. …