Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Cash Flow Statement

Question:

Financing activities bring changes in _____.

Options:

Size and composition in owners equities

Borrowings of the enterprise

Size and composition of owners equities and borrowings of the enterprise

None of the options are correct

Correct Answer:

Size and composition of owners equities and borrowings of the enterprise

Explanation:

Financing activities center around the management of long-term funds or capital within an enterprise. These activities involve actions such as acquiring or repaying capital and borrowings. These financial activities can significantly impact the size and structure of the owners' capital and liabilities. According to Accounting Standard 3 (AS-3), disclosing cash flows related to financing activities separately is essential because it aids in forecasting future claims on cash flows by the providers of funds, both those providing capital and those lending to the enterprise. 
Cash Inflows from Financing Activities:
* Receipt of cash resulting from the issuance of equity shares.
* Receipt of cash from issuing debentures, loans, bonds, and other short or long-term borrowings.
Cash Outflows from Financing Activities:
* Cash repayments made to settle borrowed amounts.
* Cash payments of interest on debentures and long-term loans.
* Cash dividends distributed on both equity and preference capital.