Final answer:
The objective in preparing the statement of cash flows is to identify operating, investing, and financing activities and list them in the proper format. Investing activities involve cash flows related to the acquisition or disposal of long-term assets, such as purchasing new equipment or selling property.
Step-by-step explanation:
The objective in preparing the statement of cash flows is to identify all transactions and events that represent operating, investing, and financing activities and to classify and list them in the proper format. Operating activities include cash flows from day-to-day business operations, such as cash receipts from sales and cash payments for expenses. Investing activities involve cash flows related to the acquisition or disposal of long-term assets, such as purchasing new equipment or selling property. Financing activities include cash flows from obtaining or repaying funds, such as issuing stock or repaying debt. Financing activities involve transactions with the company's owners and creditors, such as issuing or repurchasing stock and borrowing or repaying debt. Cash flows from financing activities include proceeds from issuing stock, dividends paid to shareholders, and repayments of long-term debt. The objective is to show how the company raises capital and how it returns capital to its investors.
By identifying, classifying, and listing cash flows into these three categories (operating, investing, and financing), the statement of cash flows provides a comprehensive view of a company's cash movement, helping stakeholders understand how the company generates and uses cash from its various business activities. This information is crucial for assessing a company's liquidity, financial flexibility, and ability to meet its obligations.