Which section of the cash flow statement shows purchases and sales of long-term assets?

• A. Operating activities show core business cash flows.
• B. Investing activities show purchases/sales of long-term assets.
• C. Financing activities show day-to-day operating cash flows.
• D. Financing activities show tax payments.

Answer: (B)

The cash flow statement groups cash movements into operating, investing, and financing activities. Purchases and sales of long-term assets are investments in property, plant, and equipment (and similar assets) and are shown in investing activities. This section reflects cash used for acquiring or disposing of long-term assets and other investments, not the day-to-day operations or the sources/uses of financing. For contrast, day-to-day operating cash flows come from customers paying and suppliers being paid, taxes, and operating expenses, all under operating activities. Financing activities involve obtaining or repaying capital from owners or creditors, such as issuing stock, borrowing, repaying debt, or paying dividends. Taxes are typically included in operating activities, so they wouldn’t appear under financing. Hence, purchases and sales of long-term assets appear in investing activities.