Question 54

Cash payments for administration expenses are an operating activity under U.S. GAAP statement of cash flows.

Operating activities include the cash flows that arise from the primary revenue-generating activities of the business. Cash payments for administration expenses are considered operating activities as they directly relate to the core functions of the business.

A) Cash receipts for the sale of plant assets

This option is incorrect because cash receipts from the sale of plant assets are classified as investing activities, not operating activities. Investing activities involve cash transactions for the purchase or sale of long-term assets.

B) Cash payments for purchase of plant assets

Similar to option A, this choice is incorrect as cash payments for the purchase of plant assets are categorized under investing activities. These transactions pertain to investments in physical assets that will benefit the company over the long term.

C) Cash receipts from the sale of a business segment

This option is also incorrect because cash receipts from the sale of a business segment are considered investing activities. They reflect cash inflows from the disposal of a portion of the business, which is not part of the day-to-day operations.

D) Cash payments for administration expenses

This option is correct as cash payments for administration expenses are classified under operating activities. These expenses are part of the general administrative functions necessary for the business to operate and generate revenue.

Conclusion

Cash payments for administration expenses are definitively categorized as operating activities because they relate to the daily operational costs of running a business. All other options fail to meet the criteria for operating activities, as they pertain to investing activities which involve longer-term asset transactions. Thus, option D stands out as the correct choice in the context of U.S. GAAP statement of cash flows.