Issuing bonds for cash is classified as which activity?

Issuing bonds for cash is classified as which activity?

• A. Investing activity
• B. Financing activity
• C. Operating activity
• D. Noncash investing/financing activity

Answer: (B)

When you classify cash flows, activities are grouped into operating, investing, and financing. Issuing bonds for cash is a financing activity because it involves obtaining capital from external sources by incurring debt and receiving cash. It affects long‑term liabilities (bonds payable) and cash, rather than the day‑to‑day operations of the business or the purchase/sale of long‑term assets. This is different from operating activities (which relate to core business activities) and investing activities (which involve buying or selling long‑term assets). If cash is exchanged for debt, and there’s no accompanying asset purchase or payment of operating expenses tied to normal business operations, it clearly fits financing.

When you classify cash flows, activities are grouped into operating, investing, and financing. Issuing bonds for cash is a financing activity because it involves obtaining capital from external sources by incurring debt and receiving cash. It affects long‑term liabilities (bonds payable) and cash, rather than the day‑to‑day operations of the business or the purchase/sale of long‑term assets. This is different from operating activities (which relate to core business activities) and investing activities (which involve buying or selling long‑term assets). If cash is exchanged for debt, and there’s no accompanying asset purchase or payment of operating expenses tied to normal business operations, it clearly fits financing.