Selling land, buildings, and equipment is associated with investing activities, even though it results in a cash inflow, because it involves resources used to begin and continue operations.
Payments of dividends and interest are associated with financing activities, even though they involve cash outflows, because they are necessary to obtain funding.
In Reading 26 [Understanding the Cash Flow Statement] a more detailed discussion of different business activities and their impact on cash flows will be provided.
A. Employing managers
Employing managers, purchasing services, and paying taxes to the government are all operating activities. Operating activities include business activities undertaken in the course of running a business and affect net income.
A. Purchasing a building
Purchasing a building is an investing activity. Investing activities involve using capital in productive ways that will help a business achieve its objectives. Financing activities are those that involve obtaining resources from investors and creditors and providing a return on investments or loans in the form of dividends or interest, such as obtaining a loan, issuing stock, and paying off a loan.
A. Issuing stock/paying dividends
Investing activities involve using capital in productive ways that will help a business achieve its objectives. Selling land is an investing activity. Paying taxes is an operating activity. Operating activities include business activities undertaken in the course of running a business and affect net income.
A. The purchase of equipment is an investing activity. Investing activities include buying resources that are needed in the operation of a business and selling those resources when they are no longer needed.
B. Obtaining a loan from a creditor is an example of a financing activity. Financing activities are used to obtain adequate funds, or capital, to begin and to continue operating a business.
C. Selling goods to a customer is an example of an operating activity. Operating activities are business activities undertaken by management in the course of running a business.