Question

Which of the following is considered an Operating Activity under US GAAP?

1. Cash dividends paid to shareholders
2. Cash paid to purchase bonds issued by another company
3. Wages paid to employees

Answer 1

Wages paid to employees are considered an operating activity under US GAAP, as they relate to the primary, day-to-day operations of a company.

Step-by-step explanation:

Under US GAAP, operating activities typically include transactions related to the primary operations of the company. These are the day-to-day activities that produce most of a company's revenue and expenses. The Statement of Cash Flows classifies cash flows during a period into three different activities: operating, investing, and financing.

Looking at the options provided:

1. Cash dividends paid to shareholders are considered financing activities because they are related to the financing of the corporation itself, affecting the equity or debt structure of the company.
2. Cash paid to purchase bonds issued by another company is categorized as an investing activity because it involves the acquisition of an investment which is not directly related to the core operations of the buying entity.
3. Wages paid to employees are, however, a typical example of an operating activity, as they directly relate to the costs of running the company's core business operations.

Therefore, the correct answer to which of the following is considered an operating activity under US GAAP is the payment of wages to employees.