Question

Suppose you noticed a cash deficit in investing activities. What would cause a cash deficit in this section?

1) A decrease in the sale of long-term assets
2) An increase in the purchase of long-term assets
3) An increase in the sale of long-term assets
4) A decrease in the purchase of long-term assets

Answer 1

A cash deficit in investing activities is typically caused by an increase in the purchase of long-term assets, which means the company is investing more cash than it is receiving from selling such assets.

Step-by-step explanation:

A cash deficit in investing activities often indicates that a company has invested more cash into long-term assets than it has generated from selling them. The correct choice that would cause a cash deficit in the investing activities section of a cash flow statement is option 2): An increase in the purchase of long-term assets. This means that the company is spending more on acquiring new assets or upgrading existing ones than it is recouping from selling or disposing of its assets.