Cash received from the issuance of share capital would appear:
would not appear on a cash flow statement as a financing activity
on the cash flow statement as an operating activity
on the cash flow statement as an investing activity
on the cash flow statement
The correct answer and explanation is:
The correct answer is: on the cash flow statement as a financing activity.
When a company issues share capital, it receives cash in exchange for ownership stakes in the company. This transaction directly affects the company’s capital structure and is considered a form of financing. The cash inflow from the issuance of share capital is classified as a financing activity on the cash flow statement because it involves obtaining funds to support the company’s operations or growth.
The cash flow statement is divided into three main sections: operating, investing, and financing activities. Operating activities include transactions that involve the day-to-day operations of the business, such as revenue from sales and payments for expenses. Investing activities involve the acquisition or sale of long-term assets, like property, plant, and equipment. Financing activities, on the other hand, include transactions related to the company’s capital structure, such as issuing or repurchasing shares, borrowing, or repaying debt.
Issuing share capital falls under financing activities because it raises capital for the business. This is a common way for companies to fund expansion, pay off debt, or invest in new opportunities. As such, the cash inflow from issuing shares increases the company’s cash position and is reported in the financing section of the cash flow statement.
By accurately classifying this transaction, financial analysts and stakeholders can better understand how a company is raising funds and how these funds will be used to support its business strategy. The cash flow statement helps assess a company’s ability to generate cash from operating activities and its reliance on external financing.