The purchase of equipment financed by long-term notes payable is an example of ________.

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The question asks to identify the correct descriptor for the transaction: buying equipment with financing obtained through long-term notes payable. Since cash is not exchanged at the date of the purchase (the equipment is acquired and a long-term note payable is created to finance it), this is considered a non-cash investing and financing activity.

In more detail, investing activities include the acquisition of long-term assets such as property, plant, and equipment. Financing activities involve obtaining resources from creditors or owners, including notes payable. When these two types of actions occur together in a single transaction—purchasing a capital asset while issuing a long-term note payable—the combined event is classified as a non-cash investing and financing activity for cash flow reporting purposes.

A critical nuance is that, because no cash changes hands at the time of the transaction, it does not appear in the cash flow from operating activities. Instead, the effect is disclosed in a supplementary schedule of non-cash investing and financing activities, clarifying how the asset was financed.

If there were cash paid at purchase, the entry would be a standard investing outflow and would not be categorized as non-cash. Conversely, if cash were received or a different financing instrument were used, the classification could vary. In short, the key idea is that the transaction involves investing in equipment and financing via a long-term note, with no immediate cash movement at the time of the agreement, which defines it as a non-cash investing and financing activity.

The purchase of equipment financed by long-term notes payable is an example of ________.

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