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Get complete step-by-step solutions for T.S. Grewal ISC Class 12 Accountancy Volume 2 - Chapter 4 - Cash Flow Statement. Study double-entry system details, practice timed problems, and verify answers directly.
State which of the following transactions are classified or shown as Operating Activity: (i) Cash Paid to Creditors; (ii) Cash received from Debtors; (iii) Interest on Bank Loan; (iv) Rent received; (v) Selling and Distribution Expenses; (vi) Purchase of Building; (vii) Wages and Salaries; (viii) Dividend Paid.
Note: A cash flow statement classifies cash flows into operating (the main revenue-producing activities), investing (acquisition and disposal of long-term assets and investments) and financing (changes in the owners' capital and borrowings).
| Item | Classification | Reason |
|---|---|---|
| (i) Cash paid to creditors | Operating | Payment for goods bought for resale — a day-to-day trading outflow. |
| (ii) Cash received from debtors | Operating | Collection from customers of credit sales — the main cash inflow of the business. |
| (iii) Interest on bank loan | Financing | It is the cost of borrowed capital. |
| (iv) Rent received | Investing | Income from a property held as an investment (for a non-finance company). |
| (v) Selling and distribution expenses | Operating | A routine cost of selling goods. |
| (vi) Purchase of building | Investing | Acquisition of a long-term asset. |
| (vii) Wages and salaries | Operating | A routine cost of running the business. |
| (viii) Dividend paid | Financing | A return paid to the owners of the capital. |
Answer: Operating activities: (i), (ii), (v) and (vii).
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