Which of the following is classified under cash flow from operating activities? a. Purchase of office equipment for cash b. Income taxes paid c. Dividend paid d. Sale of office equipment for cash
Question
Which of the following is classified under cash flow from operating activities?
a. Purchase of office equipment for cash
b. Income taxes paid
c. Dividend paid
d. Sale of office equipment for cash
Solution 1
The correct answer is:
Solution 2
The correct answer is:
b. Income taxes paid
Explanation:
Cash flow from operating activities refers to the cash generated from the core business or operational activities of a company. This includes cash received from customers, cash paid to suppliers and employees, interest and taxes paid, and net income from operations.
a. Purchase of office equipment for cash - This is a cash outflow, but it is classified under investing activities, not operating activities. Investing activities involve the purchase and sale of long-term assets, like property and equipment.
b. Income taxes paid - This is a cash outflow that is part of operating activities. It is a regular and recurring expense of running the business.
c. Dividend paid - This is a cash outflow, but it is classified under financing activities, not operating activities. Financing activities involve changes in size and composition of the owner's capital and borrowings from creditors.
d. Sale of office equipment for cash - This is a cash inflow, but it is classified under investing activities, not operating activities. As mentioned earlier, investing activities involve the purchase and sale of long-term assets.
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