CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows I
When a company using the indirect method prepares its statement of cash flows, a non-cash transaction such as acquiring a building by issuing shares directly to the seller is most likely:
The transaction is most likely disclosed separately from the statement of cash flows, for example in the notes. Issuing shares for a building involves no cash receipt or payment, so it is excluded from investing and financing activity totals.
- Areported in financing activities as a share issue
- Bdisclosed separately from the statement of cash flowsCorrect
- Creported in investing activities as a purchase of property
Explanation
Non-cash investing and financing transactions involve no cash movement, so they are excluded from the statement and disclosed elsewhere, such as in the notes. Reporting them in either section would overstate cash flows.
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