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Allowance for cash discounts go under which of the following in the statement of cash flows?...

Allowance for cash discounts go under which of the following in the statement of cash flows? EXPLAIN YOUR ANSWER!!!

a) cash flows from operating activities

b) cash flows from investing activities

c) cash flows from financing activities

d) none of the above

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Answer #1

Solution:

If direct method of statement of cash flows is used then allowance for cash discount will not go anywhere in statement of cash flows as this is a non cash item.

If indirect method of statement of cash flow is used, then allowance for cash discount will go to cash flow from operating activities and shown as change in current assets or current liabilities.

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