Sort transactions into Operating, Investing, or Financing activities.
Read each cash transaction and decide which section of the Statement of Cash Flows it belongs to: Operating, Investing, or Financing.
The Statement of Cash Flows tracks every dollar of cash that flowed in or out of the business during the period. Every cash transaction lands in one of three buckets — Operating, Investing, or Financing.
| Activity | What It Captures |
|---|---|
| Operating (O) | Day-to-day running of the business: cash from customers, cash to suppliers and employees, interest paid, taxes paid. |
| Investing (I) | Buying and selling long-term assets: equipment, buildings, land, investment securities. |
| Financing (F) | How the business is funded: issuing or buying back stock, borrowing or repaying debt, paying dividends, owner contributions or withdrawals. |
Riverbend Coffee pays $1,200 in barista wages. Wages are an operating expense — paying employees is the heart of running the coffee shop. → Operating outflow.
Other operating items: cash collected from customers, cash paid to coffee-bean suppliers, interest paid on loans, taxes paid to the government.
Fairmont Stores pays $180 million to build a new warehouse. A warehouse is a long-term asset (Property, Plant & Equipment). Buying it is an Investing activity. → Investing outflow.
Other investing items: selling old delivery trucks, buying investment securities, purchasing land for a new factory.
Fairmont Stores issues $5 billion of corporate bonds. Issuing bonds raises cash from lenders — that changes the capital structure of the business. → Financing inflow.
Other financing items: paying a cash dividend to shareholders, repaying a bank loan, buying back common stock, owner contributions or withdrawals.
If you're stuck, ask: "Is this transaction the heart of running the business, a change in long-term assets, or a change in how the business is funded?"
Heart of business → Operating. Long-term assets → Investing. Funding (debt/equity) → Financing.
Interest paid belongs to Operating, but repaying loan principal belongs to Financing. Same loan — different sections, because interest is the cost of running the business while principal is a change in how the business is funded.
Correct Rounds: 0