Cash received from the issue of debenture for a trading organization…

The correct answer is Option (4) → Financing Activity

A cash flow statement sorts every cash flow into operating, investing or financing activities. Financing activities change the size and make-up of the owners’ capital and the borrowings of the enterprise. Debentures are borrowed capital, so cash received from issuing debentures is a financing inflow, whatever the trade of the business.

Option (1) Cash and cash equivalents — Incorrect. Cash and cash equivalents are the balance the statement explains, not a class of activity.

Option (2) Operating activity — Incorrect. Operating activities are the main revenue-producing activities, such as buying and selling goods for a trading organisation. Raising a loan is not one of them.

Option (3) Investing Activity — Incorrect. Investing activities are the purchase and sale of long-term assets and investments; issuing debentures raises funds rather than investing them.