What are financing activities in the SOCF?

What are financing activities in the SOCF?

• A. Activities that result in changes in the size and composition of contributed equity and borrowings of the entity eg proceeds of a new loan
• B. Interest received
• C. Proceeds from the sale of non-current assets
• D. Purchases of non-current assets

Answer: (A)

Financing activities in the SOCF are those cash flows that affect the entity’s capital structure—changes in contributed equity and borrowings. Proceeds from a new loan fit this because they increase borrowings, changing both the size and composition of the funding available to the business. Other items shown in the options belong to different parts of the cash flow statement: interest received is generally treated as operating cash flow, while proceeds from the sale of non-current assets and purchases of non-current assets are investing activities since they relate to long-term assets and investments.

Financing activities in the SOCF are those cash flows that affect the entity’s capital structure—changes in contributed equity and borrowings. Proceeds from a new loan fit this because they increase borrowings, changing both the size and composition of the funding available to the business. Other items shown in the options belong to different parts of the cash flow statement: interest received is generally treated as operating cash flow, while proceeds from the sale of non-current assets and purchases of non-current assets are investing activities since they relate to long-term assets and investments.