Which item is NOT a financing activity?

Which item is NOT a financing activity?

• A. Paying salaries
• B. Paying dividends
• C. Issuing stock
• D. Issuing bonds

Answer: (A)

Paying salaries is not a financing activity because it relates to the day-to-day operations of the business. The cash flow statement separates activities into operating, investing, and financing. Financing activities involve changes in the company’s capital structure—transactions with owners and creditors. Issuing stock and issuing bonds bring in cash from owners or lenders, and paying dividends distributes cash to owners, all of which are financing. Salaries, as a normal operating expense, affect the cash flow from operations, not financing. Therefore, paying salaries is the correct choice as not being a financing activity.

Paying salaries is not a financing activity because it relates to the day-to-day operations of the business. The cash flow statement separates activities into operating, investing, and financing. Financing activities involve changes in the company’s capital structure—transactions with owners and creditors. Issuing stock and issuing bonds bring in cash from owners or lenders, and paying dividends distributes cash to owners, all of which are financing. Salaries, as a normal operating expense, affect the cash flow from operations, not financing. Therefore, paying salaries is the correct choice as not being a financing activity.