ACCA Financial Reporting (F7) Practice Exam

Which of the following is typically included in cash flows from operating activities?

1. Buying machinery for production.

2. Interest paid on loans.

3. Cash receipts from customers.

4. Purchasing investments in other companies.

The correct answer is: Cash receipts from customers.

Cash receipts from customers are a fundamental component of cash flows from operating activities, as they represent the cash generated from the core business operations. This category includes all cash inflows from selling goods and services to customers during a specific period. The primary focus of operating activities is to assess the performance of the entity's core business operations, and cash receipts are direct indicators of this performance. In contrast, cash flows from investing activities would include transactions like buying machinery or investing in other companies, as these reflect the company's investments in long-term assets rather than its operational profitability. Interest paid on loans, while related to financing activities, can sometimes be included in operating activities depending on the accounting policies adopted by a company, but it is less direct than cash receipts. Thus, cash receipts from customers clearly align with operating activities, highlighting the company’s ability to generate revenue from its day-to-day business.