Which item is a financing activity?

Which item is a financing activity?

• A. Issuance of stock for cash
• B. Payment of rent
• C. Purchase of equipment
• D. Payment of interest

Answer: (A)

In the cash flow statement, activities are categorized as financing, investing, or operating. Financing activities are those transactions with owners and lenders that raise capital or repay amounts borrowed. Issuing stock for cash fits this idea perfectly because it involves selling ownership stakes to raise cash, a fundamental financing activity. The other options align with different categories: paying rent is an operating activity since it’s a regular business expense to run the core operations; purchasing equipment is an investing activity because it involves acquiring long-term assets; paying interest is typically classified as an operating activity under US GAAP.

In the cash flow statement, activities are categorized as financing, investing, or operating. Financing activities are those transactions with owners and lenders that raise capital or repay amounts borrowed. Issuing stock for cash fits this idea perfectly because it involves selling ownership stakes to raise cash, a fundamental financing activity.

The other options align with different categories: paying rent is an operating activity since it’s a regular business expense to run the core operations; purchasing equipment is an investing activity because it involves acquiring long-term assets; paying interest is typically classified as an operating activity under US GAAP.