Cash flow from financing activities – meaning.

Cash flow from financing activities involves cash generated by obtaining resources from owners and providing them with a return on their investment, borrowing money and repaying amounts borrowed and obtaining and paying for other resources obtained from creditors on long-term credit. Cash flows from financing activities involve the proceeding from issuing share or other similar instrument, debentures, mortgages, bonds and other short term or long-term borrowings.

Cash outflow from financing activities are payments of dividend, payments to acquire or redeem shares to other similar instruments of the enterprise, payment of amount borrowed, principal payment to creditors who have extended long-term credit and interest paid. It is important to note down that the classification of the cash flows into operating, investing and financing categories will depend upon the nature of the business. For example, for financial institutions like banks lending and borrowing are parts of their business operations. So the income and expenditure regarding the borrowing and lending will be included in the cash flow from operating activities.

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