Houston Chambers

How is purchase of a equipment classified on the Statement of Cash Flow?

Say you incurred $1,000 from buying an equipment, but you weren't going to pay for it until next year (next financial year). Does this affect Statement of Cash Flow at all? If so, is it investing, operating, or financing? Whyyy? If it doesn't affect SCF, what does it affect? :X

Public Comments

1. Purchase of Equipment on cash is actually an investing decision. Statement of Cash Flow, in reality, uses a cash basis of accounting. Since you are to purchase the equipment next year it will not affect your SCF because under Standards of Auditing states that Assertions on Transactions includes Existence, that is the transaction should have occurred, unless you are trying to make a budgeted statement of cash flow; hence it will affect your projected financial budget (Cash Budget, and Balance Sheet Budget) or your capital budget in the computation of your annual cash flow. I do hope I've helped!
2. Answer: It does not affect the statement of cash flow until the date of payment. However, you still need to add back the depreciation traceable to it even before payment (when using the indirect method). Depreciation shall be treated as cash inflow from operation. When paid, payment should be considered as cash outflow from investing activity.