Which of the following statements BEST describes INVESTING ACTIVITIES? Activities related to the acquisition of short-term, highly liquid investments such as Treasury bills, commercial paper, and money market funds Activities related to a company’s delivering or producing its goods for sale and providing its services Activities related to purchasing and selling property, plant, and equipment Activities related to receiving funds from lenders and investors and then repaying those lenders and providing a return to those investors
Investing activities refer to the transactions that involve the purchase and sale of long-term assets and other investments. This includes activities related to purchasing and selling property, plant, and equipment.
Therefore, the statement that BEST describes investing activities is: ‘Activities related to purchasing and selling property, plant, and equipment.’
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Which of the following best describes the financing activities section of the statement of cash flows?
It reports cash flows from the company’s core business operations, including receipts from customers and payments to suppliers and employees.
It reports cash flows from the purchase and sale of long-term assets, such as property, plant, and equipment.
It reports cash flows related to borrowing from and repaying principal to creditors and transactions with the company’s owners, such as issuing or repurchasing stock and paying dividends.
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Step 1: Understand the purpose of the financing activities section in the statement of cash flows. This section focuses on transactions that affect the company’s capital structure, including borrowing, repaying debt, issuing stock, repurchasing stock, and paying dividends.
Step 2: Differentiate financing activities from other sections of the statement of cash flows. Operating activities involve the company’s core business operations, while investing activities involve the purchase and sale of long-term assets.
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Step 3: Recognize that financing activities specifically report cash flows related to creditors and owners. Examples include cash inflows from issuing bonds or stock and cash outflows for repaying loans or distributing dividends.
Step 4: Note that non-cash financing and investing activities, such as converting debt to equity, are disclosed separately in the notes to the financial statements and not included in the financing activities section.
Step 5: Confirm that the correct description of the financing activities section is: ‘It reports cash flows related to borrowing from and repaying principal to creditors and transactions with the company’s owners, such as issuing or repurchasing stock and paying dividends.’
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