Which of the following best describes what financing activities involve on the statement of cash flows?

• A. Purchasing and selling long-term assets such as equipment and buildings
• B. Earning revenue and incurring expenses in the normal course of business operations
• C. Obtaining resources from owners and providing them with a return, as well as borrowing money and repaying amounts borrowed
• D. Paying suppliers for inventory and collecting cash from customers

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of financing activities in the statement of cash flows. Financing activities involve transactions related to obtaining capital from owners (e.g., issuing shares) and creditors (e.g., borrowing money) and returning capital to them (e.g., paying dividends or repaying loans).
2. Step 2: Differentiate financing activities from other types of cash flow activities. Operating activities involve the core business operations, such as earning revenue and incurring expenses, while investing activities involve purchasing and selling long-term assets like equipment and buildings.
3. Step 3: Analyze the options provided in the question. Identify which option aligns with the definition of financing activities, focusing on transactions related to owners and creditors.
4. Step 4: Eliminate options that describe operating or investing activities. For example, paying suppliers for inventory and collecting cash from customers are operating activities, and purchasing and selling long-term assets are investing activities.
5. Step 5: Select the correct option that describes financing activities: 'Obtaining resources from owners and providing them with a return, as well as borrowing money and repaying amounts borrowed.' This matches the definition of financing activities in the statement of cash flows.