Question

• Describe the three business activities of financing, investing and operating.

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Write a two-page paper describing the financing, investing, and operating activities of a business. You might find it easier to pick a business of your choice and write about that business specifically.

• Be sure to describe what each business activity represents. Use a separate heading for each of the 3 activities (financing, investing and operating).
• Give at least two examples of different items (i.e. financial transactions) that can be found in each type of business activity.

Answer 1

Financing Activity:

Means activities related to non current liabilities and owner's equity. Financing Activities show how a company funds it's operations and expansions externally. Internal financing is not included. And no financing Activity exist because equity and liability accounts are unchanged by the expansion

Non Current Liabilities and Owner's equity items include

1)Principle amount of Long term Debt

2)Dividend Payments  

Investing Activity :

Means cash activities related to Non current assets.

Cash flows from investing activity is an item on the cash flow statement that report the aggregate change in the company's cash position resulting from investment gains or losses and changes resulting from amounts spent on investments.

Example:

1)Long term investments

2)Principle amount of Loans made to Other Entities

3)Investment in Property, Land and Equipment etc.,

Operating Activities:

Means cash activities related to net income

Which means functions of a business directly related providing it's good's or services to the market. These are the companys core business activities, such as manufacturing, distributing, marketing and selling a product or services.

Example:

1lCash generated from Sale of Goods(Revenue)

2)Cash paid for Merchandise (expenses)

Are operating activities because revenue and expense are included in Net Income.