Which one of the following is a cash flow from a corporation into the financial markets?

• A. Borrowing cash from a bank
• B. Receipt of cash from selling goods
• C. Payment of dividends to shareholders
• D. Receipt of cash from issuing bonds

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of cash flow in financial accounting. Cash flow refers to the movement of money into or out of a business, project, or financial product. It can be categorized as operating, investing, or financing activities.
2. Step 2: Identify the type of cash flow described in the problem. The question asks for a cash flow from a corporation into the financial markets, which typically falls under financing activities.
3. Step 3: Analyze each option provided: - Borrowing cash from a bank: This is a cash inflow into the corporation, not into the financial markets. - Receipt of cash from selling goods: This is an operating activity and does not involve financial markets. - Payment of dividends to shareholders: This is a cash outflow from the corporation into the financial markets, as dividends are distributed to shareholders. - Receipt of cash from issuing bonds: This is a cash inflow into the corporation from the financial markets.
4. Step 4: Focus on the correct answer, 'Payment of dividends to shareholders.' This represents a cash flow from the corporation into the financial markets because dividends are paid out to shareholders, who are part of the financial markets.
5. Step 5: Conclude that understanding the classification of cash flows (operating, investing, and financing) and their direction (inflow or outflow) is essential to solving such problems effectively.