Question

Which of the following transactions will result in ‘Cash Flows from Operating Activities’?

• A. Purchase of Inventory
• B. Payment of Dividend
• C. Purchase of Property
• D. Issue of Debentures

Hint:

Cash flows from inventory, trade receivables, and expenses fall under operating activities.
Cash used for property or raised via shares/debentures relates to investing or financing.

Answer 1

The Correct Option is A

Step 1: Operating Activities are related to the primary revenue-generating operations of the company.
Step 2: Let's analyse each option:
(A) Purchase of Inventory
This is a regular business activity involving the use of cash for buying stock.
\(\Rightarrow\) Falls under Operating Activities.
(B) Payment of Dividend
This is a return given to shareholders.
\(\Rightarrow\) Falls under Financing Activities.
(C) Purchase of Property
Involves acquiring long-term fixed assets.
\(\Rightarrow\) Falls under Investing Activities.
(D) Issue of Debentures
It involves raising funds from the public or institutions.
\(\Rightarrow\) Falls under Financing Activities.
\(\Rightarrow\) Only Option (A) results in cash flow from operating activities.