Faye is developing a statement of cash flows for Yummy Gummies, a candy company that she owns. She has a net profit of $15,000 and an increase in inventory of $7,500. She took out a line of credit with her bank to finance her business and has decreased accounts receivable by $4,000. She has also invested in equipment for shaping her candy. How will the above information be listed on the cash flow statement?
What will be an ideal response?
- Cash flow from operating activities: Faye would include net profit and the change in inventory in this section. She would also include her change in accounts receivable, the depreciation on the candy shaping equipment and other fixed assets, and any change in accounts payable.
- Cash flow from investing activities: Faye's purchase of the specialized candy equipment would be included in this section because it is an investment into an asset.
- Cash flow from financing activities: Faye's cash generated from her bank loan would go into this section of the statement as well as any change in a possible mortgage and or stock.
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