Practice prompt · Q:transactions-to-statements/cash-flow-classification-001

Classify six changes around one Cash balance

Formative check on operating, investing, financing, and noncash classification before computing section subtotals.

Updated Aug 6, 2026 Review due Nov 6, 2026

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A company begins with $10,000 Cash. During the year it collects $9,000 from customers, pays $3,000 rent, pays $5,000 for equipment, borrows $4,000 from a bank, distributes $1,000 to owners, and separately acquires $2,000 equipment by issuing a note directly to the seller. Which presentation is correct under the bounded classifications?

Choose the best answer. A Operating $10,000; investing $(7,000); financing $1,000; include the $2,000 equipment-for-note exchange in both investing and financing because the grand total still rises $4,000. B Operating $6,000; investing $(5,000); financing $3,000; disclose the $2,000 equipment-for-note exchange separately; net Cash increases $4,000. C Operating $15,000; investing $(5,000); financing $(1,000); borrowing is operating because it increases Cash and customer collections are revenue. D Operating $6,000; investing $0; financing $(1,000); charge the $5,000 equipment purchase to expense because every cash payment reduces current income.

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Answer: B

Customer collections of $9,000 less $3,000 rent paid produce $6,000 operating cash flow. The $5,000 cash equipment purchase is investing. The $4,000 borrowing less $1,000 distribution produces $3,000 financing cash flow. The $2,000 equipment-for-note exchange changes Equipment and Note Payable without Cash and is disclosed separately. Net Cash rises $4,000, so $10,000 beginning Cash becomes $14,000. Choice B is correct.