Question

What activities on the statement of cash flows represent the cash flows that arise out of purchasing?

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

Answer 1

Cash flows from purchasing long-term assets such as machines or buildings are recorded under investing activities in the statement of cash flows.

Step-by-step explanation:

The activities on the statement of cash flows that represent the cash flows associated with purchasing, such as buying a machine or building a new plant, fall under the category of investing activities. When a company purchases an asset that is expected to last several years, it is making a long-term investment, which is recorded in the investing activities section of the cash flow statement. This is different from everyday business operations or activities associated with raising funds through borrowing or issuing equity, which would fall under operating and financing activities, respectively.