Which cash flow classification normally applies to the purchase of equipment for cash?
Correct answer: B. Investing activity
- A. Operating activity
- B. Investing activity
- C. Financing activity
- D. Non-cash activity
Explanation
Purchasing equipment changes the business's long-term resources, so it is normally an investing cash flow. Operating flows relate to ordinary trading activities, while financing flows relate to capital and borrowing.
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Financial statements present a business's financial performance and position through the income statement, statement of financial position, cash flow statement and changes in equity. Questions involve preparing and interpreting these statements, adjusting entries, depreciation, closing inventory, accrued and prepaid items, and distinguishing profit from cash flow.
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