Novak Corporation is preparing its 2014 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak's 2014 statement of cash flows.

Code Letter Effect

A Added to net income in the operating section

D Deducted from net income in the operating section

R-I Cash receipt in investing section

P-I Cash payment in investing section

R-F Cash receipt in financing section

P-F Cash payment in financing section

N Noncash investing and financing activity

Answer: A increases balance of cash and cash equivalents

D decreases balance of cash and cash equivalents

R-I increases balance of cash and cash equivalents

P-I decreases balance of cash and cash equivalents

R-F increases balance of cash and cash equivalents

P-F increases balance of cash and cash equivalents

N has no effect on the statement of cash flows

Explanation: The statement of cash flows is meant to show the balance of cash and cash equivalents account of an organisation. Therefore, any activity that involves receipt of cash increases the value of the account and any activity that results in payment of cash decreases the value of the account.

Consequently, non-cash activities have no effect on the statement.