Using the direct method to prepare the statement of cash flows, cash payments for merchandise inventory is categorized on the statement of cash flows as
A)a cash payment in the operating activities section on the statement of cash flows.
B)a cash receipt in the operating activities section on the statement of cash flows.
C)a cash payment in the investing activities section on the statement of cash flows.
D)a cash receipt in the investing activities section on the statement of cash flows.

Question

Quizplus · Accepted Answer

Cash payments for merchandise inventory are part of the operating activities of a business, as they relate to the primary business operations of buying and selling goods. As such, they are categorized as a cash payment in the operating activities section of the statement of cash flows prepared using the direct method.

Using the Direct Method to Prepare the Statement of Cash