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Which item is an operating activity under U.S. GAAP statement of cash flows?

Rationale

Cash payments for administration expenses are an operating activity under U.S. GAAP statement of cash flows.

Operating activities include the cash transactions related to the core business operations, such as cash received from customers and cash paid for expenses. Administration expenses are part of the normal functioning of a business and thus qualify as operating activities.

A (Cash receipts for the sale of plant assets) YOUR ANSWER

Cash receipts from the sale of plant assets are classified as investing activities, not operating activities. This is because they involve the disposal of long-term assets rather than transactions directly tied to the core business operations.

B (Cash payments for purchase of plant assets) YOUR ANSWER

Cash payments for the purchase of plant assets also fall under investing activities. These transactions involve acquiring long-term physical assets and are not related to the day-to-day operational expenses of the business.

C (Cash receipts from the sale of a business segment) YOUR ANSWER

Cash receipts from the sale of a business segment are categorized as investing activities as well. Selling a segment of the business affects the overall investment strategy and asset management rather than the operational flow of cash.

D (Cash payments for administration expenses) CORRECT

Cash payments for administration expenses are considered operating activities because they pertain to the regular expenses incurred in the course of running the business. These payments are essential for maintaining business operations, making them a key component of operational cash flow.

Conclusion

In the context of U.S. GAAP statement of cash flows, operating activities encompass cash transactions directly tied to the core operations of a business. Among the choices, cash payments for administration expenses are the only option that reflects the ongoing operational expenses necessary for business functionality, while the other options pertain to investing activities that do not directly relate to daily operations.

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