Which of the following statements is CORRECT? Dividends do not show up in the st
ID: 2719038 • Letter: W
Question
Which of the following statements is CORRECT?
Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.
In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.
In the statement of cash flows, depreciation charges are reported as a use of cash.
In the statement of cash flows, a decrease in inventories is reported as a use of cash.
In the statement of cash flows, a decrease in accounts payable is reported as a use of cash.
A.Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.
B.In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.
C.In the statement of cash flows, depreciation charges are reported as a use of cash.
D.In the statement of cash flows, a decrease in inventories is reported as a use of cash.
E.In the statement of cash flows, a decrease in accounts payable is reported as a use of cash.
Explanation / Answer
Option E is correct
Decrease in Accounts payable implies company has paid more cash to its creditors in this period than its previous period. So decrease in A/P is caused by paying more cash.
All other statements are not correct.
Decrease in A/R is caused by collecting more cash.
Decrease in Inventories is caused by collecting more cash.
Depreciation is not a cash item, so it is not included on cash flow statement
Dividends paid is financial cash flow item of the cash flow statement.