Which transaction is typically reported in the financing activities section of the cash flow statement?

• A. Purchase of equipment.
• B. Payment of salaries.
• C. Issuance of shares to investors.
• D. Collections from customers.

Answer: (C)

Issuing shares to investors is reported in the financing activities section because it reflects changes in the company’s equity and external financing. Financing activities capture transactions with owners and creditors that affect the company’s capital structure, such as issuing stock, borrowing money, repaying debt, or paying dividends. When the company issues shares, it raises cash and increases shareholders’ equity, which is exactly the kind of financing activity this section tracks.

The other examples belong to different parts of the cash flow statement. Purchasing equipment is an investing activity since it involves acquiring long-term assets. Paying salaries is an operating activity because it relates to the day-to-day operations and expenses of running the business. Collections from customers are also operating activities, representing cash inflows from the core business operations.