Which of the following transactions or events should be reported as a source of cash from operating activities when using the direct method?
A) Depreciation expense.
B) Cash collections from customers.
C) Cash received from the sale of treasury stock.
D) Cash received from the sale of a building.
E) Credit sales.

Question

Quizplus · Accepted Answer

Cash collections from customers are a source of cash from operating activities, as they represent revenue earned from the company's primary operations.

Answer: A 
 Depreciation expense is a non-cash expense that reduces net income but does not represent an actual outflow of cash. However, it is added back in the operating activities section of the statement of cash flows to reflect the cash generated by operations.

Answer: E 
 Credit sales are not a source of cash from operating activities because they represent revenue earned but not yet collected in cash. They would be reported as an increase in accounts receivable instead.

Answer: C 
 Cash received from the sale of treasury stock is a financing activity and would be reported as a source of cash from financing activities on the statement of cash flows.

Answer: D 
 Cash received from the sale of a building is an investing activity and would be reported as a source of cash from investing activities on the statement of cash flows.

Which of the Following Transactions or Events Should Be Reported