Question

Explain what we mean by noncash activities and provide an example.

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So the activity which does not involve in any cash dealings is known as non cash activities. In this type of activities, there will not be any inflow or outflow of cash. The non cash investing and financing activities are not reported in the statement of cash flows. However, the non cash investing and financing activities are reported under separate schedule.\text{\color{#c34632}So the activity which does not involve in any cash dealings is known as non cash activities. In this type of activities, there will not be any inflow or outflow of cash. The non cash investing and financing activities are not reported in the statement of cash flows. However, the non cash investing and financing activities are reported under separate schedule.}

Following are examples of non cash items of cash flow:

  • Financing activities - example: conversion of bonds payable into common stock

  • Financing activities - example: exchange of long - term assets

  • Investing activities - example: purchase of long-term assets by issuing stock

  • Investing activities - example: purchase of long-term assets by issuing debt

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