Question

Inflow/outflow on what section of the SOCF? To buy short-term investments EXCEPT trading?

1) Operating activities
2) Investing activities
3) Financing activities
4) Cannot be determined

Answer 1

Non-trading short-term investments are classified under investing activities on the Statement of Cash Flows. This section captures the flow of cash related to the acquisition and disposal of investments, and it does not include trading securities which fall under operating activities.

Step-by-step explanation:

The inflow and outflow of funds for the purchase of non-trading short-term investments would be classified in the investing activities section of the Statement of Cash Flows (SOCF). When an entity buys short-term investments, it is allocating capital for the purpose of generating income or profit from the investment, except for trading securities which are usually classified within operating activities due to their short-term, liquid nature and the intent to sell them within a short period.

Reading the balance of international flows, it is crucial to understand how different types of transactions impact the relevant sections of the SOCF. The flow of export and import payments are tracked within the current account, while international financial investments like the purchase of real estate and securities are concerned with the flow of investment capital and would be typically recorded in the financial or investment section.

On the SOCF, these transactions would affect the cash and cash equivalents with an outflow when purchasing investments, and later an inflow when possibly selling or earning dividends from these investments. Thus, acquiring short-term investments, with the exception of those meant for trading purposes, registers in the investing activities.

Answer 2

Buying short-term investments, except for trading, is categorized as investing activities on the SOCF.

The correct option is 2.

Step-by-step explanation:

The inflow/outflow associated with buying short-term investments, except for trading, falls under the category of Investing Activities on the Statement of Cash Flows (SOCF).

Investing activities involve the acquisition and disposal of long-term assets and other investments. This includes purchasing short-term investments such as stocks and bonds, as well as real estate.

Operating activities primarily deal with the day-to-day operations of a business, while financing activities involve activities related to raising and repaying capital.

The correct option is 2.