How should cash received from sale of equipment be classified?

How should cash received from sale of equipment be classified?

• A. Noncash investing/financing activity
• B. Operating activity
• C. Investing activity
• D. Financing activity

Answer: (C)

Cash received from selling equipment is a cash inflow from disposing of a long-term asset, which goes under investing activities on the cash flow statement. Investing activities cover cash used for purchasing or selling property, plant, and equipment, as well as other investments. Treating the sale as investing is appropriate because it involves a non-operating asset rather than the day-to-day operations of the business. If you’re using the indirect method, any gain or loss from the sale affects net income in operating cash flow, but the actual cash proceeds from the sale appear in the investing section. Noncash investing/financing activities would involve exchanges without cash, operating activities relate to regular business operations, and financing activities involve debt, equity, or dividends.

Cash received from selling equipment is a cash inflow from disposing of a long-term asset, which goes under investing activities on the cash flow statement. Investing activities cover cash used for purchasing or selling property, plant, and equipment, as well as other investments. Treating the sale as investing is appropriate because it involves a non-operating asset rather than the day-to-day operations of the business. If you’re using the indirect method, any gain or loss from the sale affects net income in operating cash flow, but the actual cash proceeds from the sale appear in the investing section. Noncash investing/financing activities would involve exchanges without cash, operating activities relate to regular business operations, and financing activities involve debt, equity, or dividends.