Which cash flow category includes borrowing funds?

Which cash flow category includes borrowing funds?

• A. Operating activities
• B. Investing activities
• C. Non-cash activities
• D. Financing activities

Answer: (D)

Borrowing funds is classified as a financing activity on the cash flow statement because it relates to obtaining external funds to support the business. Financing activities involve interactions with creditors and owners, such as borrowing, issuing stock, paying dividends, and repaying debt. When a company borrows cash, both cash and a liability increase, reflecting a financing-related change rather than day-to-day operations or the purchase of long-term assets. In contrast, operating activities show cash from core business operations, investing activities cover asset purchases and sales, and non-cash activities don’t involve cash.

Borrowing funds is classified as a financing activity on the cash flow statement because it relates to obtaining external funds to support the business. Financing activities involve interactions with creditors and owners, such as borrowing, issuing stock, paying dividends, and repaying debt. When a company borrows cash, both cash and a liability increase, reflecting a financing-related change rather than day-to-day operations or the purchase of long-term assets. In contrast, operating activities show cash from core business operations, investing activities cover asset purchases and sales, and non-cash activities don’t involve cash.