B) Investing Activities

The sale of machinery is classified as an investing activity in accounting. Investing activities are transactions or events that involve the purchase or sale of long-term assets, such as property, plant, and equipment. These activities are reported on the statement of cash flows, which provides information about how a company generates and uses cash.

Here is a detailed explanation of why the sale of machinery is considered an investing activity:

1. Definition of investing activities:
Investing activities are defined as the acquisition or disposal of long-term assets and other investments that are not classified as cash equivalents. These activities involve the purchase or sale of property, plant, and equipment, as well as investments in stocks, bonds, and other securities.

2. Nature of machinery:
Machinery is considered a long-term asset or fixed asset for a company. It is used in the production process and has a useful life of more than one year. When a company decides to sell its machinery, it is disposing of a long-term asset and generating cash inflow.

3. Statement of cash flows:
The statement of cash flows is divided into three sections: operating activities, investing activities, and financing activities. The sale of machinery is reported in the investing activities section, along with other transactions related to the acquisition or disposal of long-term assets.

4. Example of cash flow classification:
Let's consider an example: Company XYZ sells a piece of machinery for $50,000. The original cost of the machinery was $100,000, and its accumulated depreciation is $60,000. The net book value of the machinery is $40,000 ($100,000 - $60,000). When the machinery is sold, the company receives $50,000 in cash. This cash inflow of $50,000 will be reported as a positive amount in the investing activities section of the statement of cash flows.

In conclusion, the sale of machinery is classified as an investing activity because it involves the disposal of a long-term asset. The cash inflow generated from the sale is reported in the investing activities section of the statement of cash flows.