The Three Types of Business Activities in Accounting
The three main types of business activities are financing, investing and operating. These three types of activities all involve the flow of money, however what the money is for will be the determinate of which category it belongs in. It is important to know how to look at each transaction and recognize what type of activity.
Financing activities are transactions that are involved with financing the company and/or individual customer financing. Any transaction like a loan or anything bought on credit would be this type. Any monies paid on principle or interest paid would be considered a financing activity and would go in that section of the Statement of Cash Flows. Dividends paid to shareholders or the repurchase of stock would also be considered a financing activity.
Investing transactions are those that are not part of daily operation of the company and are used solely for investing purposes. Small term investments would be considered obviously, but any loans made to customers or other entities would also be considered an investing transaction. Dividends and interest earned on investments would also qualify under the investing category for Statement of Cash Flows. Purchases of long term investments such as land, equipment or property will also be viewed as an investment.
Operating activities are all the different activities a company will do in their day-to-day business practices involved with running the company. This would be anything from paying bills and employees, to keeping the heat on by paying that bill. Product cost and delivery cost are also operating activities, expenditures made to keep the company running. Sales and income from operations are also put in the operating section of all separating paperwork.
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