In ramon company, treasury stock increased $20,000 from a cash purchase, and retained earnings increased $80,000 as a result of net income of $120,000 and cash dividends paid of $40,000. net cash used by financing activities is:
a) $20,000
b) $40,000
c) $120,000
d) $60,000

D) $60,000

Explanation:

‘Cash Flow Statement’ is one of major financial statement that indicates the inflow and outflow of cash along with the reasons by categorizing each cash transaction in three activities i.e., operating, investing or financing activity. Non-cash transactions are not considered while preparing a cash flow statement.

1.Operating Activities records the cash transactions involved in the operations of the business are recorded under ‘operating activities’ in the cash flow statement. Examples: Revenue earned, expenses incurred etc.

2.Investing Activities records the cash transactions that show the changes in long-term investments are recorded under ‘investing activities’ in cash flow statement. Example: Purchase of plant, sale of equipment etc.

3.Financing Activities records the cash transactions that show the changes in the finances or long-term debt of the company are recorded under the ‘financing activities’ in the cash flow statement. Example: Debt paid off, new shares issued etc.

Net cash flow from financing activities section is shown below: