Question

In general, financing activities as used in the statement of cash flows refer to:

A. liability and owners' equity items and include (a) obtaining cash from creditors and repaying the amounts borrowed and (b) obtaining capital from owners and providing them with a return on, and a return of, their investment.
B. transactions involving long-term assets and include (a) making and collecting loans and (b) acquiring and disposing of investments and productive long-lived
assets.
C. only debt transactions that result from long-term borrowings from financial institutions.
D. the cash effect of transactions that enter into the determination of net income and, thus, help finance the operations of the business through the generation of cash.

Answer 1

Financing activities in the statement of cash flows generally include liability and owners' equity items, encompassing actions like acquiring loans and providing returns to investors.

Step-by-step explanation:

In general, financing activities as used in the statement of cash flows refer to Option A: liability and owners' equity items and include (a) obtaining cash from creditors and repaying the amounts borrowed and (b) obtaining capital from owners and providing them with a return on, and a return of, their investment. Option B relates to investing activities, not financing activities, while Option C is too narrow in its definition. Option D discusses the operations of the business, which is actually related to operating activities, another section of the cash flow statement.

Within the context of financing activities, banks play a critical role as financial intermediaries, facilitating transactions between savers who supply financial capital and borrowers who demand loans. Firms have several methods to raise capital, such as borrowing through banks or issuing bonds, and each choice has its own implications for the financial structure of the business.