Question

Classifying Cash Flows Identify whether each of the following would be reported as an operating, investing, or financing activity on the statement of cash flows: a. Retirement of bonds payable Investing b. Purchase of inventory for cash Financing c. Cash sales Investing d. Repurchase of common stock Investing e. Payment of accounts payable Operating f. Disposal of equipment

Answer 1

Answer:

a. Financing activity

b. Operating activity

c. Operating activity

d.  Financing activity

e. Operating activity

f. Investing activity

Explanation:

Basically there are three types of activities:

1. Operating activities: It includes those transactions which affect the working capital, and it records transactions of cash receipts and cash payments.

2. Investing activities: It records those activities which include purchase and sale of the fixed assets

3. Financing activities: It records those activities which affect the long term liability and shareholder equity balance. Example: equity, bonds payable, etc

Based on the above information about each activity, the reporting of each transaction is shown below:

a. Financing activity: As the transaction is related to the bond payable

b. Operating activity: As the transaction is related to the inventory

c. Operating activity:  As the transaction is related to the sales

d.  Financing activity: As the transaction is related to the common stock

e. Operating activity: As the transaction is related to the account payable

f. Investing activity: As the transaction is related to the equipment