ACCA Financial Reporting (F7) Practice Exam 2025 – Complete Prep Guide

Payments for employee salaries fall under the category of cash flows from operating activities. This is because operating activities include the primary revenue-generating activities of a business, and they encompass both cash inflows and outflows related to those revenues. Employee salaries are a fundamental part of the costs incurred in the normal course of business operations, making them a direct cash outflow related to operating activities.

In the context of financial reporting, the operating activities section provides insight into the company’s ability to generate cash from its core business functions. This cash flow category includes transactions related to revenue generation and expenses, ensuring that stakeholders have a clear picture of the company's operational efficiency.

The other cash flow categories do not encompass employee salary payments. Investing activities are primarily associated with the acquisition and disposal of long-term assets, financing activities relate to transactions with the company's capital structure and financial obligations, and non-operating activities would involve income or expenses that are not directly tied to the core operations of the business. Therefore, the classification of salary payments as cash flows from operating activities highlights their integral role in the business's day-to-day operational costs.