Which of the following statements is correct?1 pointThe purchase of new machinery decreases cash from operations.The repayment of a bank loan decreases cash from investing.Cash flow from operations increases when we recognize a credit sale.A payment of dividends decreases cash from financing.
Question
Which of the following statements is correct?1 pointThe purchase of new machinery decreases cash from operations.The repayment of a bank loan decreases cash from investing.Cash flow from operations increases when we recognize a credit sale.A payment of dividends decreases cash from financing.
Solution
The correct statement is: "A payment of dividends decreases cash from financing."
Here's why:
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The purchase of new machinery is considered an investing activity, not an operational activity. Therefore, it decreases cash from investing, not operations.
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The repayment of a bank loan is a financing activity, not an investing activity. Therefore, it decreases cash from financing, not investing.
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Cash flow from operations does not increase when we recognize a credit sale. This is because a credit sale is recorded as accounts receivable (a current asset) and does not immediately affect cash flows. It will only affect cash flow from operations when the cash is actually received.
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A payment of dividends is a financing activity. When a company pays dividends, it reduces its cash balance. Therefore, it decreases cash from financing.
Similar Questions
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