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

The sale of equipment is classified as an investing activity in the statement of cash flows because it involves the purchase or disposal of long-term assets that are used in the operations of a business. Investing activities are primarily concerned with transactions that affect the long-term assets of the company, which includes the acquisition and disposal of property, plant, and equipment, as well as investments in other entities.

When a company sells equipment, it generates cash inflow from that transaction, which reflects its ability to manage its long-term resources effectively. This type of activity is fundamental to assessing how well a company is investing its capital to sustain and grow its operations.

In contrast, the other options represent cash flows from different activities. Issuing shares pertains to financing activities, as it involves raising capital through equity financing. Payment of dividends is also a financing activity, as it reflects the distribution of profits to shareholders. The collection of accounts receivable is classified as an operating activity, as it deals with cash inflows from the day-to-day business operations. Understanding these classifications is essential for accurately interpreting a company's cash flow statement.