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16.2 Differentiate between Operating, Investing, and Financing Activities

Three Types of Activities​

1. Operating Activities:

  • Day-to-day business operations
  • Cash from customers
  • Cash to suppliers and employees
  • Cash from operations

Examples:

  • Cash from sales
  • Cash paid to suppliers
  • Cash paid for salaries
  • Cash paid for expenses

2. Investing Activities:

  • Purchase and sale of long-term assets
  • Investments
  • Loans made to others

Examples:

  • Purchase of equipment
  • Sale of equipment
  • Purchase of investments
  • Loans to others

3. Financing Activities:

  • Borrowing and repaying debt
  • Issuing and repurchasing stock
  • Paying dividends

Examples:

  • Borrowing money
  • Repaying loans
  • Issuing shares
  • Paying dividends

Luxembourg Compliance Note​

Activity classification in Luxembourg:

  • Must follow PCN format
  • Must classify correctly
  • Must comply with standards

Think It Through​

Why is it important to classify cash flows into operating, investing, and financing activities?