Which of the following is not correct about the statement of cash flows? A) Paying dividends to investors creates a cash outflow from financing activities. B) A purchase of equipment is classified as a cash outflow from investing activities.

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05-03-2020
Business

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Which of the following is not correct about the statement of cash flows? A) Paying dividends to investors creates a cash outflow from financing activities. B) A purchase of equipment is classified as a cash outflow from investing activities.

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Edufirst Edufirst · Answer 1 · 2020-03-13T12:37:04+01:00

Answer:

The statement that is not correct is:

B) A purchase of equipment is classified as a cash outflow from investing activitites.

Explanation:

A) Paying dividends to investors creates a cash outflow from financing activities.

This is correct.

The financing cash flow or cash flow generated by financing activities is the cash flow that involves transactions with the banks (only the long term debt) or stake holders: financing debt, equity, and dividend.

Issuing equity of debt is a cash inflow: increases the cash of the company.

Paying dividends, such as repurchasing debt or equity are cash outlfow: decreases the cash of the company.

B) A purchase of equipment is classified as a cash outflow from investing activities.

This is not correct.

The operating cash flow is the cash that involves the operations of the company: sales (revenue), trade receivables, operating investement in building and equipments used for the operation, purchases from suppliers (inventory).

When you purchase an equipment it diminishes the cash or impact an operating account; thus, a purchase of equipment is classified as a cash ouflow from operating activities, not from investing activities.

ayfat23 ayfat23 · Answer 2 · 2021-12-07T10:10:08+01:00

Statement that is not right as regards cash flow is B:A purchase of equipment is classified as a cash outflow from investing activities..

cash flow serves as net amount of cash as well as cash equivalents that comes in and out of a company.

When you pay dividends to investors can be regarded as cash flow becomes it goes out from the company. purchase of equipment cannot be regarded as a flow from financing activities.

Therefore, option B is correct because it is a wrong statement about cash flow.

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