Which section of the cash flow statement shows cash received from customers and cash paid to suppliers?
Correct Answer
D) Operating activities
Operating activities include cash flows from the primary business operations, such as cash received from customers for services and cash paid to suppliers and employees. This section reflects the cash-generating ability of core business operations.
Why This Is the Correct Answer
Operating activities represent the cash flows from a company's primary business operations - the day-to-day activities that generate revenue and incur expenses. Cash received from customers represents the inflow from providing construction services, while cash paid to suppliers represents outflows for materials, subcontractors, and other operational expenses. These transactions are directly related to the core business of construction and are classified as operating activities on the cash flow statement. This section shows how well the company converts its sales into actual cash.
Why the Other Options Are Wrong
Option A: Financing activities
Investing activities involve cash flows related to the acquisition and disposal of long-term assets, such as purchasing equipment, selling property, or making investments in securities. Customer payments and supplier payments are not related to asset purchases or sales.
Option B: Investing activities
Supplemental activities is not a standard section of the cash flow statement. The three main sections are operating, investing, and financing activities, with supplemental disclosures providing additional information about non-cash transactions.
Memory Technique
Think 'Operations = Customers and Suppliers' - these are your daily operating relationships that keep the construction business running day-to-day.
Reference Hint
Look up 'Cash Flow Statement' or 'Financial Statements' in your business and finance reference materials, typically found in the business management section
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