CSLB Law & Business ExamBusiness FinancesMedium
A contractor is preparing a cash flow forecast. Which of the following would be classified as a cash flow from financing activities?
- APayment of employee salaries.
- BIssuing new shares of company stock.
- CPayment for purchasing new construction equipment.
- DCash received from customers for services rendered.
Show answer & explanationAnswer & explanation
Correct answer: B. Issuing new shares of company stock.
Financing activities involve transactions related to debt, equity, and dividends. Issuing new shares of company stock is a direct way a company raises capital from owners, classifying it as a financing activity.
Why the other options are wrong
- A. Paying salaries is an operating activity.
- C. Purchasing equipment is an investing activity.
- D. Cash received from customers is an operating activity.
Cash Flow from Financing Activities
Cash inflows and outflows related to debt, equity, and dividends.
- Includes transactions with owners (e.g., issuing stock, paying dividends).
- Includes transactions with creditors (e.g., borrowing money, repaying loans).
- Shows how a company raises and repays capital.
Memory trick: O-I-F: Operations, Investing, Financing is how cash flows.