Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as: A. Investing activities. B. Direct activities. C. Indirect activities. D. Operating activities. E. Financing activities.
D. Operating activities.
A financial statement is a written report that quantitatively describes a firm's financial health. Under the financial statements is a cash-flow statement, which is used to record the cash inflow and cash equivalents leaving a business firm.
Cash flow statement, also known as the statement of cash flows, contains financial information about operating, financial and investing activities.
Hence, activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as operating activities. All the net income or cash from all operational business activities of a company is recorded as operating activities.
The operating activities deal with the purchase and sale of merchandise to the customers plus it also involves the expenditure incurred for day to day operations like - wages and salaries expenses, administrative expenses, selling and other general expenses
By performing day to day activities, the company is enabled to generate the revenues through which the company could accomplish its goals and objectives.
The operating activities in the cash flow statement using the direct method derive that the cash receipts and the cash payment should be recorded under this activity.
Cash payment would be recorded when the purchase of merchandise is held
And cash received would be recorded when the sale of goods and services made to customers
And, the purchase of goods, sales of goods and services show in the income statement along with the expenditure to arrive at the net income i.e. shown in the operating activities