Which one of the following is considered a use of cash in financial accounting?

• A. Borrowing from a bank
• B. Payment of dividends
• C. Issuance of common stock
• D. Sale of equipment

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of 'use of cash' in financial accounting. A use of cash refers to any transaction where cash is spent or flows out of the business, reducing the cash balance.
2. Step 2: Analyze each option provided in the question to determine whether it represents a use of cash or a source of cash. Borrowing from a bank is a source of cash because it increases the cash balance through a loan.
3. Step 3: Evaluate the option 'Payment of dividends.' Dividends are payments made to shareholders, which involve cash flowing out of the business. This is considered a use of cash.
4. Step 4: Examine the option 'Issuance of common stock.' Issuing stock generates cash inflow from investors, making it a source of cash rather than a use of cash.
5. Step 5: Assess the option 'Sale of equipment.' Selling equipment results in cash inflow, which is a source of cash rather than a use of cash. Therefore, the correct answer is 'Payment of dividends,' as it represents a use of cash.