Question

label each transaction either operating, investing, financing, or no transaction :

1. A restaurant has a large banquet hall that it rents out for weddings and other special events.  The restaurant receives a cash deposit from a customer in January to reserve the banquet hall for a wedding in May.  

2. A restaurant purchases produce from a supplier on account.

3. A restaurant purchases a delivery truck with cash to allow it to cater at remote locations.

4. A restaurant borrows $25,000 from a local bank to purchase various party supplies.

5. A restaurant purchases for $2,500 cash a liability insurance policy that will cover the restaurant for the next year.

6. A restaurant declares and pays a cash dividend to its owners.

7.A restaurant purchases equipment from a supplier and will pay in seven weeks.

8.A restaurant sets up a $300000 line of credit with a bank.  The restaurant has not used the line of credit, but has access to it if needed.

9. A restaurant purchases new machines, signing a 7 year note from the manufacturer to pay for it.

10. A restaurant pays its employees.

Answer 1

The activities are classified with respect to their cashflow effect

1) Operating activity as it the part of the business

2) No transation as no involvement of cash

3) Investing activity as truck is part of the fixed asset

4)Financing activity as loan is financing activity

5) Operating activity as insurance is part of operation

6)Payment of dicidend is part of financing activity

7)No transaction as no involvement of cash

8)No transaction as no involvement of cash

9)No transaction as no involvement of cash

10) Payment of salary is part of operating activity