Question

Can some please let me know if I labeled these correctly as investing, operating or financing?

Snyder a Cash Balance Debit Credit Date Description $ 5,790 550 5,240F 9,740.0 4,500 670 1,250 6,930 4,500 9.000 350 3,500 9,0700 7,820 F 14.7500 19,2500 10,2501 9.9000 6,400F 10,2201 2,7200 8600 4,7601 1,0101 7700 3,820 7,500 1,860 3,900 3,750 1/1/18 Beginning Balance (carried forward) 1/13/18 Payment for herbicide 1/16/18 Sale of 3 breeding livestock to Marksbury Farms 1/22/18 Feed purchase 1/27/18 Obligations on leased asset (milking eq.) --2/18/18 Insurance claim received (filed 12/29/17) 2/20/18 Sale of damaged equipment 3/1/18 Purchase of Farm Vehicle 3/5/18 Interest on Note (Ag Lenders Union) 3/19/18 Principle on Note (Ag Lenders Union) 4/11/18 Sale of heifers 4/15/18 Wages to farm hands 5/1/18 Blanket insurance lump-sum (Farmer's Insurance) 5/9/18 Sale of breeding livestock to M. Lee --5/13/18 Equipment for artificial insemination (s#33594) 6/6/18 Payment for equipment repair 6/22/18 Purchase of feed 7/25/18 Payroll taxes (withholding and employer-side) 8/19/18 Feed purchase 8/20/18 Checking account overdraft fees 9/9/18 Income tax payment to IRS (late fees incl.) 9/12/18 Owner's contribution from non-farm income 10/1/18 Loan from Farmer's First Credit Union 10/5/18 Milk sales to Double Dairy Co. 11/7/18 Bank charges 11/15/18 Withdrawal (for personal use) 11/22/18 Wages to farm employees 11/22/18 Owner's contribution from savings account 12/1/18 Obligations on leased asset (farm vehicle) 12/2/18 Sale of breeding livestock to Cinta Ltd. 12/20/18 Owner's withdrawals 240 650 1200 -6500 2,780 5,000 3,700 100 1,200 3,300 L-9400 -9850 -1,7800 1,000F 6,000 F 9,7000 9,6000 8,400F 5,1000 13,100F 12,450F 16,0000 14,000 F 8,000 650 3,550 2,000

Answer 1

IAS 7 Statement of Cash Flows classifies cash flows/transactions into 3 types:

I. Operating Activities-

1. main revenue-producing activities of the entity
2. Residual activities- not investing or financing activities ( Examples- cash received from customers and cash paid to suppliers and employees) [IAS 7.14]
3. Taxes on income are normally classified as operating [IAS 7.35]

II. Investing Activities- Acquisition and disposal of long-term assets and other investments (not cash equivalents) [IAS 7.6]

III. Financing Activities- alter the equity capital and borrowing structure of the entity [IAS 7.6]

Under the assumption that the cash flows/transactions in the given question pertain to a business of farming and poultry, the classification done by you is correct except the following:

		Amount ($)
Date	Description of Transcription	Debit	Credit	Type of activity		Justification
1/13/2018	Payment for herbicide		550	Operating Activity	i)	Payment for herbicide does not alter the equity capital and borrowing structure of the entity. Therefore it cannot be classified as a Financing activity
					ii)	Since there is no acquisition and/or disposal of long-term assets and other investments, it cannot be classified as an Investing Activity.
					iii)	Being a residual activity, this cash flow will be classified under Operating Activities.
1/27/2018	Obligations on leased asset (milking equipment)		1,250	Operating Activity	i)	Obligations on leased asset (milking equipment) is a lease rental payment for leasing milking equipment.
					ii)	Payment of lease rental does not alter the equity capital and borrowing structure of the entity. Therefore it cannot be classified as a Financing activity
					iii)	Since there is no acquisition and/or disposal of long-term assets and other investments, it cannot be classified as an Investing Activity.
					iv)	Being a residual activity, this cash flow will be classified under Operating Activities.
2/20/2018	Sale of damaged equipment	4,500		Investing Activity		Since there is disposal of long-term assets, it should be classified as an Investing Activity.
12/1/2018	Obligations on leased asset (farm vehicle)		650	Operating Activity	i)	Obligations on leased asset (milking equipment) is a lease rental payment for leasing milking equipment.
					ii)	Payment of lease rental does not alter the equity capital and borrowing structure of the entity. Therefore it cannot be classified as a Financing activity
					iii)	Since there is no acquisition and/or disposal of long-term assets and other investments, it cannot be classified as an Investing Activity.
					iv)	Being a residual activity, this cash flow will be classified under Operating Activities.
12/2/2018	Sale of Breeding Livestock to Cinta Ltd.	3,550		Investing Activity	i)	In farming business, breeding livestock is considered as a capital asset.
					ii)	Since there is disposal of long-term assets, it should be classified as an Investing Activity.