Which of the following is considered an operating activity when preparing the statement of cash flows using the indirect method?

• A. Payment of dividends to shareholders
• B. Cash received from customers
• C. Cash paid to acquire equipment
• D. Issuance of common stock

Answer: (B)

Verified step by step guidance

1. 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 cash received from customers and cash paid to suppliers.
2. Review the indirect method for preparing the statement of cash flows: This method starts with net income and adjusts for non-cash transactions, changes in working capital, and other items to calculate cash flows from operating activities.
3. Analyze each option provided: Payment of dividends to shareholders is a financing activity, cash paid to acquire equipment is an investing activity, and issuance of common stock is also a financing activity.
4. Identify the correct option: Cash received from customers is directly related to the core operations of the business and is considered an operating activity under the indirect method.
5. Conclude that cash received from customers is the correct answer because it reflects cash inflows from the primary operating activities of the business.