Financing Activities

The Financing Activities are those transactions between the entity and its owners or creditors.

The primary focus of financing activities is to raise working capital necessary to be used in business operations.  The owners invest to the entity and/or creditors lend capital to the entity.

The transactions involving financing activities and their effects in the cash flows are as follows:

A.   Transactions which increases cash (cash receipts)

1. Owner's investments
2. Borrowings

B.   Transactions which decreases cash (cash payments)

1. Owner's drawings
2. Payments of borrowings

Investing Activities

The main purpose of investing activities is to acquire assets in order to facilitate and expedite the operations of the business.

The Investing Activities are those transactions which involve acquisition and disposal of assets other then inventory, which are necessary in the business operations.

Following are transactions which are considered investing activities and their effects in the cash flow:

A.  Transactions which increases cash (cash receipts)

1. Sale of plant assets
2. Sale of non-trading securities
3. Sale of business segment
4. Collection of principal in loans

B.  Transactions which decreases cash (cash disbursements)

1. Purchase of plant assets
2. Purchase of non-trading securities
3. Making loans to other entities 

Operating Activities

The Operating Activities are those business transactions which generates revenue for the organization. These include expenses incurred to produce revenues.

The following are the transactions included under the operating activities:

A. Transactions which increases cash (cash receipts from operating activities)

1. Selling or sale of goods
2. Rendering or sale of services
3. Selling of trade securities
4. Earnings from interest income
5. Earnings from dividend income

B. Transactions which decreases cash (cash payments or disbursements for activities)

1. Purchases of inventory
2. Operating expenses
3. Taxes
4. Interest expense (short-term)
5. Purchase of trading securities