For the item below, determine whether the amount would be disclosed in the cash flow statement under: Operating (CFO), Investing (CFI), or Financing (CFF), as well as if would be a net increase (+) or decrease (-) in cash or cash equivalents: A. Principal payments on long-term borrowings
B. Decrease in accounts receivable
C. Proceeds from long-term borrowings
D. Increase in deferred income tax net liability
E. Net earnings
F. Increase in prepaid expenses
G. Increase in merchandise inventories
H. Cash dividends paid
I. Proceeds from issuance of common stock
J. Increase in accrued salaries, wages, and related benefits
K. Payments for repurchase of common stock
L. Capital Expenditures
M. Increase in accounts payable
N. Depreciation and amortization expenses

Explanation:

Operating Cashflows have to do with the transactions dealing with the day to day activities of the business including calculations of net income and revenue and expenses.

Investing Cashflow has to do with the transactions involving fixed assets such as Property, Land and Equipment since these are Capital Expenditure. Also included are stock ownership and bond holding of other entities.

Financing Cashflows refer to transactions relating to the provision of capital for the business through loans or Equity.

A. Principal payments on long-term borrowings.

FINANCING - decrease (-)

This is a financing transaction that deals with long term loans. It will decrease the cash or cash equivalents held.

B. Decrease in accounts receivable.

OPERATING - Increase +

This is an operating cashflow and it is an increase because Receivables reduce when they pay the business so cash increases.

C. Proceeds from long-term borrowings.

FINANCING - Increase +

This is a financing activity and the increase is due to money from Issuing Bonds or borrowing money coming into the business.

D. Increase in deferred income tax net liability.

OPERATING - Increase +

By reducing the amount that we pay in tax that means that less cash has been paid which also means that more cash is kept in the business which increases the Cash balance.

E. Net earnings.

OPERATING - Increase +

So long as the Net Earnings are positive, they go to the Operating Section and increase the amount of cash and cash equivalents.

F. Increase in prepaid expenses.

OPERATING - Decrease -

By increasing the amount of prepaid expenses, this means that the company used money to pay for expenses it hasn't incurred yet which reduces the cash in hand.

G. Increase in merchandise inventories.

OPERATING - Decrease -

By buying more Inventory, more cash was spent and this therefore reduces the cash and cash equivalents balance.

H. Cash dividends paid.

FINANCING - Decrease -

Dividends relate to equity and Equity is a Financing Cashflow Transaction. Paying Dividends means giving out cash so it reduces the cash and cash equivalents balance.

I. Proceeds from issuance of common stock.

FINANCING - Increase

Similar to proceeds from long term borrowings, Equity is a Financing activity as it finds the business, the proceeds received from here increase the cash and cash equivalents balance.

J. Increase in accrued salaries, wages, and related benefits.

OPERATING - Increase +

These are Operating Cashflow transactions and by withholding them, the business does not spend cash on them. That cash that was not paid is an increase to the cash and cash equivalents balance.

K. Payments for repurchase of common stock.

FINANCING - Decrease -

By repurchasing stock which is an Equity transaction, this goes to the Financing Section. The cash spent to repurchase the stock reduces the amount of cash and cash equivalents on hand.

L. Capital Expenditures.

INVESTING - Decrease -

By buying capital items or spending on Capital Investments, the company makes an investment and as such this goes to the Investment Section. The expenses are a reduction on cash.

M. Increase in accounts payable.

OPERATING - Increase +

Accounts Payable are an Operating Activity and when they are increased that means that the company paid less cash and bought more things on credit. That cash that wasn't paid is an increase in the cash balance.

N. Depreciation and amortization expenses.

OPERATING - Increase +

By including depreciation and amortization in the operating cashflow, these increase the Cashflow because they are non cash items. Even though they are recorded, no physical cash actually flows to them. This cash that was supposed to flow to them is in increase.

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