Financing activities are transactions that result in changes in the size and composition of the equity capital and borrowings of the entity. They include activities such as issuing shares, borrowing loans, and repaying debt.
5 Must Know Facts For Your Next Test
Financing activities are listed in the cash flow statement under a separate section from operating and investing activities.
Common examples include issuing bonds, obtaining loans, paying dividends, and repurchasing shares.
Cash inflows from financing activities increase cash reserves, while cash outflows decrease them.
The net cash provided by or used in financing activities is crucial for understanding how a company funds its operations and growth.
Significant fluctuations in this section can indicate changes in a company's financial strategy.
Review Questions
What types of transactions are considered financing activities?
How do financing activities impact a company's cash reserves?
Why is it important to analyze the net cash provided by or used in financing activities?