Intermediate Financial Reporting 1 Practice Exam

Financing activities cover the cash flows from transactions with a company’s owners and creditors that change its capital structure. This includes issuing stock or taking on new borrowings (cash inflows) and repaying debt or paying dividends (cash outflows). These actions affect equity and liabilities, not day-to-day operations or asset purchases. For example, issuing shares increases cash and equity, while repaying a loan decreases cash and liabilities.

Cash receipts from customers are operating activities, reflecting the core business operations. The acquisition of long-term assets is an investing activity, dealing with investments in property, plant, and equipment. And financing activities do affect cash flows, since they involve movements of cash tied to debt and equity.