Operating activities result from the cash effects of
Multiple Choice
selling equipment.
issuing long-term debt.
paying dividends to shareholders
producing and delivering goods.
The correct answer and explanation is :
Correct Answer:
Producing and delivering goods.
Explanation:
Operating activities refer to the core business functions that generate revenue and expenses, primarily related to the production and sale of goods or services. These activities are reported in the cash flow statement under the operating activities section, which measures cash inflows and outflows from normal business operations.
The correct answer, “producing and delivering goods,” falls under operating activities because it directly involves generating revenue from core business functions. This includes transactions such as cash receipts from customers, cash payments to suppliers, wages paid to employees, and other day-to-day expenses necessary for running a business.
Why the Other Options Are Incorrect:
- Selling Equipment – This is an investing activity because it involves the disposal of a long-term asset. Investing activities include buying or selling property, plant, and equipment (PP&E) and investments in securities.
- Issuing Long-term Debt – This is a financing activity because it relates to obtaining funds by issuing bonds or loans, which affects a company’s capital structure rather than its daily operations.
- Paying Dividends to Shareholders – This is also a financing activity because it involves distributing profits to shareholders, which does not relate to producing goods or services but rather to managing the company’s financial resources.
Conclusion:
Operating activities are essential for assessing a company’s financial health since they show whether the business generates sufficient cash flow to sustain itself. The primary focus of these activities is producing and delivering goods or services, as they directly impact a company’s profitability and long-term success.