Cash received from the issue of debenture for a trading organization is......

Financing Activity

The correct answer is option 4- Financing Activity.

Cash received from the issue of debenture for a trading organization is Financing Activity.

Cash received from the issue of debentures represents Money raised from external sources (i.e. lenders/investors). It is not related to daily operations (like sales or expenses). Therefore, it falls under Financing Activities.

Financing activities relate to long-term funds or capital of an enterprise. As per AS-3, financing activities are activities that result in changes in the size and composition of the owners’ capital (including preference share capital in case of a company) and borrowings of the enterprise. Separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of funds (both capital and borrowings) to the enterprise. Examples of financing activities are:

Cash Inflows from financing activities:

• Cash proceeds from issuing shares (equity or/and preference).
• Cash proceeds from issuing debentures, loans, bonds and other short/ long-term borrowings.

Cash Outflows from financing activities:

• Cash repayments of amounts borrowed.
• Interest paid on debentures and long-term loans and advance.
• Dividends paid on equity and preference capital.