Financial Activities are activities that companies undertake to help achieve their economic goals and objectives. They include events and transactions that affect a business’ equity and long-term liabilities.
Anything to do with the movement of money, i.e., cash inflows and outflows, is a financial activity.
Purchasing and selling assets or products, organizing accounts, and maintaining accounts, for example, are financial activities. Arranging loans, selling bonds or stocks are also financial activities.
In this context, the term ‘stocks’ means the same as ‘shares.’ Hence, the term ‘stocks and shares.’
Put simply; financial activities are anything companies do with specific monetary objectives.
In accounting, we display financial activities on the statement of cash flows. Specifically, they are the third set of cash activities.
Financial activities – cash flows
The term includes the flow of cash into and out of the company, i.e., cash inflows and outflows. This money is from investors and creditors.
New loans that the company issues, for example, are inflows from creditors.
Loan and interest payments, on the other hand, at cash outflows.
In other words, whenever money is flowing in or out of a company, there is a financial activity.
Dividends are payouts to shareholders from a company’s profit.
Some financial activities, however, have no effect on a company’s cash. If a company finances a project directly, for example, cash remains unaffected.
A company’s cash account never alters if it uses a mortgage for a new building.
In this case, the liability account increases, as does the building account.
Financial activities – examples
Below is a list of the most common financial activities that accountants enter in the statement of cash flows:
- Issuance of bonds and other debts (cash inflow).
- Sale of shares (cash inflow).
- Repurchasing of company shares (cash outflow).
- Dividend payments (cash outflow).
- Debt repayments (cash outflow).