Question

Classify the following cash flows as either operating, investing, or financing activities assuming indirect method.

1. Received cash interest on a note

2. Paid cash interest on outstanding notes

3. Received cash dividends from investments

4. Paid accounts payable with cash

5. Sold stock investments for cash

6. Paid cash for a building

7. Cash paid to purchase long-term investments

8. Received cash from long-term debt issuance

9. Received cash from short-term debt issuance

10. Received cash payments from customers

Answer 1

Answer:

Received cash interest on a note	Operating Activity
Paid cash interest on outstanding notes	Operating Activity
Received cash dividends from investments	Operating Activity
Paid accounts payable with cash	Operating Activity
Sold stock investments for cash	Investing Activity
Paid cash for a building	Investing Activity
Cash paid to purchase long-term investments	Investing Activity
Received cash from long-term debt issuance	Financing Activity
Received cash from short-term debt issuance	Financing Activity
Received cash payments from customers	Operating Activity

Note:

• Operating activities are those activities that are related to day to day operations of the business. In other words, operating activities are the functions of the business that are directly related to the production of goods or rendering of services. These are the core and main business activities. Example: receipt of customers, payments to suppliers, taxes paid, salaries paid, etc.
• Investing activities are those activities that are related to non-current assets and investments of the company. Example: Investments purchased, dividends received, buildings purchased, interest received, etc.
• Financing activities are those activities that are related to procurement or acquisition of funds. These are those activities that are related to debt and equity. Example: shares, debentures issued, interest payments, loans from a bank, dividend payments, etc.

In case of any doubt, please comment.