CSLB Law & Business ExamBusiness FinancesEasy
A contractor is preparing a cash flow statement. Which of the following activities would be classified under 'Cash Flow from Operating Activities'?
- AIssuance of new common stock
- BPurchase of a new company vehicle
- CCollection of accounts receivable
- DPayment of a bank loan principal
Show answer & explanationAnswer & explanation
Correct answer: C. Collection of accounts receivable
Cash flow from operating activities includes cash generated from a company's normal business operations. Collection of accounts receivable is a direct result of these operations.
Why the other options are wrong
- A. Issuance of new common stock is a financing activity.
- B. Purchase of a new company vehicle is an investing activity.
- D. Payment of loan principal is a financing activity.
Cash Flow from Operating Activities
This section of the statement of cash flows reports the cash generated or used by a company's day-to-day business activities, such as sales, purchases, and payments for operating expenses.
- Reflects core business operations
- Includes cash from customers and to suppliers/employees
- Most important indicator of a company's financial health
Memory trick: O.I.F. – Operations, Investments, Financing – keeps the cash flowing in a statement.