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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Which Of the following statements regarding business activities is true?

  1. Operating activities involve buying the long-term assets that enable a company to generate revenue.
  2. Financing activities include obtaining the funds necessary to begin and operate a business.
  3. Investing activities center around earning interest on a company’s investments.
  4. Companies spend a relatively small amount of time on operating activities.

To determine

Concept Introduction:

The Cash flow statement shows the movement of cash during a particular period. The Cash flows are categorized into three categories as follows:

  • Operating Activities: Operating Activities are day to day business transactions, for example sales purchase etc.
  • Investing Activities: Investing Activities belong to the sale or purchase of assets or investments of a business. For example sales of fixed assets etc, purchase of investments.
  • Financing Activities: Financing Activities includes the transactions related to raising business finds through equity or debts. For example, issuance of shares and payment of dividend to shareholders.

To choose:

The true statement regarding business activities.

Explanation

Explanation for correct answer: Financing Activities includes the transactions related to raising business finds through equity or debts. For example; issuance of shares, and payment of dividend to shareholders etc. Hence It is true that the Financing activities include obtaining the funds necessary to begin and operate a business.

Explanation for incorrect answers:

a. Operating Activities are day to day business transactions, for example sales purchase etc...

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