Business undertakings between a company and its creditors and investors are called financing or financial activities. It consists of cash inflows and outflows, or the sourcing and utilization of cash. Enterprises engage in commercial activities in order to expedite the realization of their economic goals. Essentially, financial activities support the company’s transactions and strategic actions.

1. Basics of Accounting Accounting for Financial
Activities

2. What are
Financial
Activities?
2
• Business undertakings between a
company and its creditors and
investors
• Consist of cash inflows and outflows,
or the sourcing of utilization of cash
• Support the company’s transactions
and strategic actions

3. Components of
Financial
Activities
3
• Acquisitions or sales of assets, stocks
or goods
• Issuance of equities, bonds, or debts
• Payment of dividends
• Other activities that include financial
goals

4. Components of
Financial
Activities
4
• Acquisitions or sales of assets, stocks
or goods
• The management sets a ceiling for
the amount of resources and time
duration for it to be carried out.
• The entire acquisition process
represents a cash outflow.
• Shows that the company is in a
robust and secure financial status

5. Components of
Financial
Activities
5
• Issuance of equities, bonds, or debts
• Organizations issue share or equities
via Initial Public Offering (IPO).
• Companies can still issue equities
through private business dealings.
• Debts are issued through short- and
long-term loans, bond sales, and
lines of credit.

6. Components of
Financial
Activities
6
• Payment of dividends
• Approval of management is needed
when paying dividends.
• Paid quarterly
• Derived from after-tax net income
• Some companies issue one-time
dividends.

7. Financial
Statements
from Financial
Activities
7
• All transactions under financial
activities are reflected on the
Statement of Cash Flows
• Cash flows are classified as either
positive or negative.
• Cash flow from commercial activities
covers and quantifies the cash inflows
and outflows between the business and
its creditors, investors and owners.

8. Financial
Statements
from Financial
Activities
8
• Financial statements from financial
activities give insights on how an entity
borrows and pays back its loan or credit,
issues stocks, bonds, or equities, and pay
dividends.
• For investors and creditors, these
documents will let them know and
understand how the business sets it
capital from debt and equity sources,
and how these sources are settled for a
certain period.

9. Metrics for
Financial
Activities
9
• Illustrate the overall health of the
business
• Show the cash inflows and outflows
• Show how the company’s resources
are being managed for a particular
financial activity

10. Metrics for
Financial
Activities
10
• Cash flows that are free from debts
• With this metric, the management
will know the amount of cash
flowing in that is not allocated for
settling debts.
• Gives the management a picture of
the relationship between the cost of
borrowed money and the business
returns

11. Metrics for
Financial
Activities
11
• Excess cash
• Insufficient cash translates to
business problems
• Having excess cash has demerits and
can affect the company.
• The rise and drop of excess cash
balance is a good indicator of the
health of the business.

12. Metrics for
Financial
Activities
12
• Return on assets
• Can be calculated by dividing the Net
Operating Income after Tax by the
Total Assets

13. Metrics for
Financial
Activities
13
• Accounts payable
• The company’s short-term debt that
must be settled
• Accounts receivable
• The amount of money that your
customers owe you
• Invoices that are not settled yet

14. Good fortune is what
happens when
opportunity meets with
planning.
- Thomas Alva Edison
14
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