The Business of Chiropractic (TBOC) Practice Test

This item tests how cash flows are categorized in the cash flow statement. Cash paid to purchase equipment is a capital expenditure—it buys a long-term asset (equipment) for use in the business. Investing activities include cash transactions for acquiring or disposing of long-term assets like equipment, property, or investments. So the outflow to buy equipment is recorded under investing activities.

Operating activities cover the day-to-day cash flows from running the business, such as selling goods or paying for inventory and wages. Financing activities involve cash flows related to borrowing, repaying debt, issuing stock, or paying dividends. A noncash investing/financing activity would be a transaction that does not involve cash.

Thus, cash paid to purchase equipment is classified as an investing activity.