InvestorQ : What are the two sets of cash flows, a financing scheme, and another for an investment scheme?
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What are the two sets of cash flows, a financing scheme, and another for an investment scheme?

Answer
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divya Sing answered.
1 week ago


There are three categories of cash flows -- operating activities, investing activities, and financing activities. Operating activities include cash activities related to net income. Investing activities include cash activities related to noncurrent assets. Financing activities include cash activities related to noncurrent liabilities and owners’ equity. Cash flows from investing and financing are prepared the same way under the direct and indirect methods for the statement of cash flows. To put it simply, if we receive cash in the transaction we add the cash amount received and if we pay cash in the transaction, we subtract the cash amount paid.

Cash flow from investing activities-
In general investing activities involve purchasing and disposing of assets necessary for business operations. Different businesses need to acquire different types of assets such as land, property, plant, equipment, patents, copyrights, cash, accounts receivable, etc.

Investing activities is one of the ways to acquire assets.
Cash flows from investing activities are usually reported in the second section of the statement of cash flows. Typical investing cash flows are presented below.

Cash inflows from investing activities:
Selling fixed assets
Selling intangible assets
Selling investments
Collecting principal on loans made to other entities

Cash outflows from investing activities:
Payments to purchase fixed assets
Payments to purchase intangible assets
Payments to purchase investments (i.e., equity securities of other entities)
Making loans to other entities


Cash flow from financing activities-
In general financing activities involve obtaining funds to start and operate a business. Such activities reflect the relationship between the company and its lenders (e.g. bank) and owners (e.g., shareholders). For instance, issuing bonds and repaying the debt is a financing activity that involves creditors while paying cash dividends is a financing activity that involves owners.
Cash flows from financing activities are usually reported in the third section of the statement of cash flows. Typical financing cash flows are presented below.

Cash inflows from financing activities:
Issuing notes payable
Issuing bonds
Issuing preferred and common stock

Cash outflows from financing activities:
Repaying debt (i.e., principal)
Paying cash dividends
Buying treasury stock