Multiple Choice
Under a group insurance policy, an employee has the right to name a beneficiary and the right to:
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1. Introduction to Accounting
Types of Accounting
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Activities such as purchasing raw materials are considered which type of accounting activities?
A
Investing activities
B
Operating activities
C
Financing activities
D
Operating activities
Verified step by step guidance1
Understand the three types of accounting activities: Operating, Investing, and Financing. Operating activities involve the primary revenue-generating activities of a business, such as production, sales, and providing services. Investing activities involve the acquisition and disposal of long-term assets and investments. Financing activities involve transactions with creditors and investors to fund the business.
Identify the nature of the activity described in the problem: purchasing raw materials. Raw materials are essential for production, which is a core operational function of a business.
Relate the activity to the definition of operating activities. Since purchasing raw materials is directly tied to the production process, it falls under operating activities.
Compare purchasing raw materials with the definitions of investing and financing activities. Purchasing raw materials does not involve acquiring long-term assets or investments (investing activities) nor does it involve transactions with creditors or investors (financing activities).
Conclude that purchasing raw materials is classified as an operating activity because it is part of the day-to-day operations necessary for generating revenue.
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