Which item represents an operating activity in the cash flow statement?

• A. Cash receipts from customers
• B. Proceeds from issuing stock
• C. Purchase of equipment
• D. Dividends paid

Answer: (A)

Operating activities include the cash flows that arise from the company’s core business operations—selling goods or providing services and the related cash receipts and payments. Cash receipts from customers are a direct cash inflow from the primary revenue-generating activity, so they belong in the operating section of the cash flow statement.

Proceeds from issuing stock are financing activities because they involve obtaining capital from owners. Purchase of equipment is an investing activity since it relates to acquiring a long-term asset. Dividends paid are financing activities because they are a distribution of earnings to owners.

Thus, cash receipts from customers best represent an operating activity.