Which of the following is NOT a common class of cash receipts and disbursements from operating activities using the direct method?

• A. Cash received from customers
• B. Cash paid to suppliers and employees
• C. Purchases of fixed assets
• D. Interest received and paid

Answer: (C)

The identification of the correct answer arises from understanding the components of cash flows related to operating activities, especially when employing the direct method of cash flow reporting. The direct method focuses solely on cash transactions directly tied to the core operations of a business, including cash inflows from customers and cash outflows to suppliers and employees.

Cash received from customers and cash paid to suppliers and employees are indeed key components of operating activities, reflecting the primary revenue-generating and operational costs of the business. Interest received and paid, although related to cash flows, are typically classified under operating activities as they contribute to the overall income generation and cash management of the company, impacting net income.

In contrast, the purchase of fixed assets relates to investing activities rather than operating activities. This type of cash disbursement is linked to the acquisition of long-term assets that facilitate the company’s operations over time but do not directly reflect the day-to-day operational cash flows. Hence, it is appropriately categorized under investing activities in the cash flow statement.

Knowing these classifications clarifies why the purchase of fixed assets is not a common class of cash receipts or disbursements associated with operating activities when using the direct method.