The three major forms of business activities are financing, investing and operating.

2019-7 The Three Forms of Business Activities in Accounting


Business activities are essentially activities done in business. Any activity done in business is directed at one thing—profit making. Therefore “Business activities” is a general term used in the description of all the economic-related activities in which a company gets involved in the course of their business.

The three major forms of business activities are financing, investing and operating. These activities have to do with the the flow of money. However, the essence of the money will determine the category under which the money is grouped. It is essential to understand how to look at every transaction and identify what type of activity under which every action in business will be grouped. On the overall, these activities have the ultimate target of creating value for shareholders.

The cash flows that each of these activities create will be recorded under its own segment of the annual report in the financial statement called the cash flow statement.

 

The Three Forms of Business Activities Explained

Financing Activities

Financing activities are transactions that have to do with individual customer financing and/or financing the company. Transactions such as loans, credit transactions, debt financing, secondary offerings and initial public offerings fall under this category. Dividends, stock repurchases as well as interest also belong here. In fact, any business activity that has to do with fundraising or financing will be found here.

These activities will be recorded under the section of the Statement of Cash Flows that has to do with financing activities.

Investing Activities

Investing transactions are business activities that have to do with the long-term use of cash. These kinds of activities are not under the usual daily operations of the company and are used to refer to activities that have to do with investments. These are business activities capitalized over the space of at least a year. It also involves the purchase of long-term assets. If it has to do with investing into something, then it is referred to as “the use of cash” under this category. If it has to do with dividends from investment or the sale of real estate, then it is referred to as a source of cash. Generally, purchase of land, property or equipment of value fall under this category.

Small term investments would be considered obviously, but any loans made to customers or other entities would also be considered an investing transaction. Dividends and interest earned on investments would also qualify under the investing category for Statement of Cash Flows. 

Operating Activities

As the name connotes, operating activities has to do with the various business practices done by a company on a daily basis. This involves things ranging from paying for running costs to paying employees’ salaries. Delivery cost and product cost are also basic activities to e classified under the operating activities of a company.

 It also has to do with all expenditures made to keep the company running. The sales and income accrued from operations also fall under the operation section of the paper work.

 


Caleena PracticePlus