Which of the following would be categorized as an investing activity?

• A. Purchasing long-term equipment
• B. Paying wages
• C. Collecting cash from customers
• D. Issuing stock

Answer: (A)

Understanding cash flow categories helps you see where a company’s cash is coming from and going to. Investing activities involve changes in long-term assets and investments. Purchasing long-term equipment fits this, because it uses cash to acquire a long-term asset that will be used in the business to generate future benefits. It represents investing in the company’s productive capacity.

In contrast, paying wages is an operating cash outflow tied to daily operations; collecting cash from customers is an operating cash inflow from core business activities; issuing stock is a financing activity, since it affects the company’s equity and cash from financing activities.