How are construction project cash flows classified in the statement of cash flows?

• A. Operating activities reflect investing in PPE and intangible assets.
• B. Investing activities reflect cash receipts from customers.
• C. Financing activities reflect payments to suppliers.
• D. Operating activities reflect cash receipts from customers and payments to suppliers; investing activities reflect PPE and intangible assets; financing activities reflect borrowings and repayments.

Answer: (D)

Cash flows are organized by activity type: operating, investing, and financing. Operating activities capture the cash effects of delivering goods and services, such as cash receipts from customers and payments to suppliers and subcontractors (plus employees). Investing activities deal with the acquisition and disposal of long-term assets like property, plant, and equipment and intangible assets. Financing activities reflect changes in the entity’s capital structure, such as borrowings and repayments, and equity transactions. For a construction project, cash receipts from customers and payments to suppliers are operating activities; purchases or disposals of PPE and intangible assets are investing activities; borrowings and repayments are financing activities. This mapping is exactly what the correct option describes.