Multiple Choice
Don Lieberman and Associates, a CPA firm, primarily engages in which type of accounting?
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1. Introduction to Accounting
Types of Accounting
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Each of the following are classified as an operating activity except:
A
Paying suppliers for inventory
B
Collecting cash from customers
C
Purchasing equipment for cash
D
Paying salaries to employees
Verified step by step guidance1
Understand the concept of operating activities: Operating activities are the primary revenue-generating activities of a business and include transactions related to the core operations, such as selling goods or services, paying suppliers, and paying employees.
Review the examples provided in the problem: Paying suppliers for inventory, collecting cash from customers, and paying salaries to employees are all directly related to the day-to-day operations of the business.
Identify the exception: Purchasing equipment for cash is not an operating activity. Instead, it is classified as an investing activity because it involves the acquisition of long-term assets used in the business.
Clarify the distinction between operating and investing activities: Operating activities focus on short-term operational transactions, while investing activities involve the purchase or sale of long-term assets like equipment, property, or investments.
Conclude the classification: The correct answer is 'Purchasing equipment for cash,' as it is not an operating activity but an investing activity.
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