Is purchasing equipment by paying cash a cash flow from operating activities, investing activities, or financing activities? Explain. | Homework.Study.com (2024)

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Is purchasing equipment by paying cash a cash flow from operating activities, investing activities, or financing activities? Explain. | Homework.Study.com? ›

Answer and Explanation:

The calculation of OCF excludes financing and investment activities, such as borrowing, buying capital equipment and making dividend payments. Operating cash flow is also known as cash flow provided by operations, cash flow from operating activities and free cash flow from operations.

Answer and Explanation: The sale of equipment for cash would be considered an investing activity. The purchase of or sale of long-term assets are all types of investing activities as the cash flows generated and used in this are based on looking forward multiple periods.

Operating activities include cash activities related to net income. Investing activities include cash activities related to noncurrent assets. Financing activities include cash activities related to noncurrent liabilities and owners' equity.

In this case, the purchase of equipment is being financed by a long-term notes payable, which means that the company is borrowing money to acquire the equipment. This borrowing is considered a financing activity because it involves obtaining funds from an external source to finance the acquisition of the equipment.

Investing activities refer to earnings or expenditures on long-term assets, such as equipment and facilities, while financing activities are the cash flows between a company and its owners and creditors from activities such as issuing bonds, retiring bonds, selling stock or buying back stock.

In the cash flow statement, financing activities refer to the flow of cash between a business and its owners and creditors. It focuses on how the business raises capital and pays back its investors. The activities include issuing and selling stock, paying cash dividends and adding loans.

Cash Flow Statement: The purchase of equipment appears as a cash outflow under Cash Flow from Investing Activities.

The activities included in cash flow from investing actives are capital expenditures, lending money, and the sale of investment securities. Along with this, expenditures in property, plant, and equipment fall within this category as they are a long-term investment.

Cash inflows (proceeds) from investing activities include:

Cash receipts from collections of loans (except for program loans) and sales of other agencies' debt instruments. Cash receipts from sales of equity instruments and returns from investments in those instruments.

Is purchasing equipment an operating activity? ›

Answer and Explanation: Purchasing equipment by paying cash is cash flow from investing activities. Long-term purchases of buildings, land, or equipment are all counted as investment by a business and are listed under operating cash flows.

Investing activities include purchases of long-term assets (such as property, plant, and equipment), acquisitions of other businesses, and investments in marketable securities (stocks and bonds).

Investing activities include making and collecting loans, purchasing and selling debt or equity instruments of other reporting entities, and acquiring and disposing of property, plant, and equipment and other productive assets used in the production of goods or services.

The correct answer is capital expenditure. Purchase of a machinery is an example for capital expenditure. It is generally for the maintenance of long-term assets to improve the efficiency or capacity of the company.

Equipment finance describes a loan or lease that is used to obtain business equipment. It can be any tangible asset such as office furniture, machine tools, vehicles, computers, hospital MRI. This type of equipment financing can be done by obtaining a loan to purchase equipment or by leasing equipment.

Cash flow from investing activities involves long-term uses of cash. The purchase or sale of a fixed asset like property, plant, or equipment would be an investing activity. Also, proceeds from the sale of a division or cash out as a result of a merger or acquisition would fall under investing activities.

Machinery is the fixed asset of the business, hence cash paid to purchase the machinery will be classified as cash outflow under-investing activity.

Cash flow from operating activities (CFO) indicates the amount of money a company brings in from its ongoing, regular business activities, such as manufacturing and selling goods or providing a service to customers.

Operating activities include generating revenue, paying expenses, and funding working capital. It is calculated by taking a company's (1) net income, (2) adjusting for non-cash items, and (3) accounting for changes in working capital.