Final answer:
When auditing the statement of cash flows, an auditor would not expect financing activities to be a source of receipts and payments.
Step-by-step explanation:
When auditing the statement of cash flows, an auditor would not expect to see financing activities as a source of receipts and payments. Financing activities involve obtaining funds from external sources or repaying debts, such as issuing or repurchasing stock, issuing or repaying long-term debt, or paying dividends. However, financing activities are not considered sources of receipts and payments for the purposes of the statement of cash flows.
The primary sources of receipts and payments that an auditor would expect to find in the statement of cash flows are operating activities, investing activities, and non-operating activities. Operating activities include cash transactions related to routine business operations, such as sales, purchases of inventory, and payment of operating expenses. Investing activities involve the acquisition or disposal of long-term assets, such as property, plant, and equipment, or investments in other companies. Non-operating activities include cash transactions that are not directly related to the primary business operations, such as gains or losses from the sale of assets or investments.
For example, if a company sells inventory for cash, this would be a source of receipts in the operating activities section. If a company purchases new equipment for cash, this would be a payment in the investing activities section. And if a company sells an investment in another company for cash, this would be a source of receipts in the non-operating activities section.