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Which of the following is a cash flow from financing activities?
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13. Statement of Cash Flows
Financing Activities
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Which of the following would be classified as a financing activity on the statement of cash flows?
A
Paying suppliers for inventory
B
Purchasing equipment for cash
C
Issuing common stock for cash
D
Receiving interest income
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Understand the classification of activities in the statement of cash flows: Operating activities involve the primary revenue-generating activities of the business, investing activities involve the acquisition and disposal of long-term assets, and financing activities involve transactions with the company's owners and creditors to fund the business.
Identify the nature of each option provided: Paying suppliers for inventory is related to the day-to-day operations of the business and would be classified as an operating activity. Purchasing equipment for cash involves acquiring a long-term asset and would be classified as an investing activity.
Analyze the correct answer: Issuing common stock for cash involves raising funds from shareholders, which is a transaction with the company's owners. This is classified as a financing activity because it directly impacts the company's capital structure.
Consider the remaining option: Receiving interest income is related to the company's earnings from investments or loans, which is typically classified as an operating activity unless specified otherwise.
Conclude that the correct classification for a financing activity in this context is 'Issuing common stock for cash,' as it aligns with the definition of financing activities in the statement of cash flows.
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