Which of the following is considered a cash flow from financing activities on the statement of cash flows?

• A. Paying suppliers for inventory
• B. Purchasing equipment for cash
• C. Receiving interest income
• D. Issuing common stock for cash

Answer: (D)

Verified step by step guidance

1. Understand the classification of cash flows: The statement of cash flows categorizes cash flows into three main activities: operating, investing, and financing. Financing activities involve transactions related to raising capital or repaying investors.
2. Analyze the options provided: Paying suppliers for inventory is an operating activity because it relates to the day-to-day operations of the business. Purchasing equipment for cash is an investing activity because it involves acquiring long-term assets. Receiving interest income is an operating activity because it is part of the company's regular income generation.
3. Focus on the correct answer: Issuing common stock for cash is a financing activity because it involves raising capital by selling ownership shares in the company.
4. Relate the correct answer to the definition of financing activities: Financing activities include transactions such as issuing stock, borrowing money, and repaying debt. Issuing common stock for cash fits this definition as it raises funds for the company.
5. Conclude the reasoning: Based on the classification of cash flows, issuing common stock for cash is correctly identified as a cash flow from financing activities on the statement of cash flows.