ITPEC IP October 2019 Question 70

Sales activities — cash received from selling products comes from the company's main business, which is what this section (usually called operating activities) reports.

A cash flow statement divides the change in cash into three sections:

• •Sales (operating) activities — cash from the main business: receipts from customers, payments to suppliers and employees, taxes
• •Investment activities — buying and selling fixed assets such as buildings and equipment, and securities
• •Financial activities — borrowing and repaying loans, issuing shares, paying dividends

Answer (a)

Why not others:

• •(b) Financial activities — shows how the company raises and returns funds, through loans, shares and dividends, not the proceeds of sales
• •(c) Investment activities — shows spending on and sale of long-term assets and investments
• •(d) Administrative activities — not a section of the cash flow statement; there are only the three above

Key rule: A healthy company usually shows positive operating cash flow, which funds its investing outflows; persistent negative operating cash flow means the main business is consuming cash.

Corporate Activities · AI-written, may contain errors