Final answer:
The event was an investing activity, as it led to a decrease in assets and liabilities with a corresponding cash outflow shown in the statement of cash flows.
Step-by-step explanation:
The event that caused total assets and liabilities to decrease and a cash outflow to appear on the statement of cash flows could have been D) An investing activity.
When a company undertakes an investing activity, it typically involves the sale or disposal of long-term assets, such as property, plant, and equipment. These transactions can lead to a decrease in the total assets on the balance sheet if the assets are sold for cash. Correspondingly, if the assets had associated liabilities (for instance, loans taken to purchase them), paying off these liabilities would decrease the total liabilities as well.
An investing activity also results in a cash outflow, which will be reflected on the statement of cash flows under investing activities. This indicates that cash left the company in exchange for divesting the asset. Revenue recognition (A) would not cause a decrease in liabilities and doesn't necessarily result in a cash flow. Expense recognition (B) impacts income statement and owner's equity but not liabilities directly. A financing activity (C) would involve transactions related to the company's own equity or debt but not necessarily its assets.