Question 1:

Explain how cash flows from operating activities differ from net income.

Question 2:

Explain why it is important to a company's financial health to have a positive cash flow from operations.

Question 3 -Effects on Cash flow Transactions

Required:

Classify each of the following transactions as increasing, decreasing, or having no effect on cash flows:

a. Purchasing inventory from a supplier on account

b. Purchasing office supplies and writing a cheque to cover the amount

c. Selling inventory to a customer on account

d. Buying a building by making a down payment and taking out a mortgage for the balance of the amount owed

e. Depreciating capital assets

f. Making a payment on a bank loan, where the amount paid includes interest and a portion of the principal

g. Issuing common shares

h. Declaring and paying dividends to shareholders

i. Paying wages owed to employees

j. Receiving interest owed from a customer