Identify the Cash Outflow from Financing Activity

The correct answer is Option (4) → Repayment of Bank Overdraft

Financing activities change the size of the owners’ capital and the borrowings of the enterprise. A bank overdraft is money borrowed from the bank, so paying it back is a repayment of an amount borrowed: a cash outflow from financing activities.

• Option (1) Increase in Share Capital — Incorrect. Cash received from issuing shares is an inflow from financing activities, not an outflow.

• Option (2) Proceeds from Long term Borrowings — Incorrect. Money borrowed brings cash in, so it is a financing inflow.

• Option (3) Dividend Received — Incorrect. For a non-financial company dividend received is an inflow from investing activities.