In the statement of cash flows, which activity includes cash transactions related to borrowing or repaying debt?

• A. Financing activities
• B. Operating activities
• C. Investing activities
• D. Non-cash activities

Answer: (A)

Financing activities cover how a company finances its operations through external sources of capital. This includes cash inflows from borrowing funds and cash outflows from repaying debt, as well as transactions with equity like issuing or repurchasing stock and paying dividends. The statement of cash flows separates cash flows into operating activities (day-to-day business) and investing activities (purchasing or selling long-term assets); financing activities specifically capture changes in debt and equity. When a company borrows cash, cash increases and liabilities rise; when it repays debt, cash decreases and liabilities fall. Non-cash financing or investing activities are disclosed separately and do not affect cash. So the described cash transactions involving borrowing or repaying debt belong in financing activities.