Question

Identify and describe the three types of activities performed by business organizations. Provide example.

Answer 1

Meaning of business activities

business activities include any activity a business engages in for the primary purpose of making a profit. This is a general term that encompasses all the economic activities carried out by a company during the course of business. Business activities, including operating, investing and financing activities, are ongoing and focused on creating value for shareholders.Business activities are any events that are undertaken by a corporation for the purpose of earning a profit.

There are three main types of business activities: operating, investing, and financing. The cash flows used and created by each of these activities are listed in the cash flow statement. The cash flow statement is meant to be a reconciliation of net income on an accrual basis to cash flow. Net income is taken from the bottom of the income statement, and the cash impact of balance sheet changes are identified to reconcile back to actual cash inflows and outflows.

Three main types of business activities are as below:

a.Operating business activities:Operating activities are the functions of a business directly related to providing its goods and/or services to the market. These are the company's core business activities, such as manufacturing, distributing, marketing, and selling a product or service. Operating activities will generally provide the majority of a company’s cash flow and largely determine whether it is profitable. Some common operating activities include:

• cash receipts from goods sold,
• payments to employees,
• tpayment on taxation,
• payments to suppliers etc.

hese activities can be found on a company's financial statements and in particular the income statement and cash flow statement.

b. Investing activities :Investing activities are one of the main categories of net cash activities that businesses report on the cash flow statement. Investing activities in accounting refers to the purchase and sale of long-term assets and other business investments, within a specific reporting period. A business’s reported investing activities give insights into the total investment gains and losses it experienced during a defined period. Investing activities are a crucial component of a company’s cash flow statement, which reports the cash that’s earned and spent over a certain period of time. For example:

• The Purchase of Investments
• Proceeds from the Sale of Investments
• The Purchase of Fixed Assets
• Proceeds from the Sale of Fixed Assets

c.Financing activities: Financing activities are transactions or business events that affect long-term liabilities and equity. In other words, financing activities are transactions with creditors or investors used to fund either company operations or expansions. These transactions are the third set of cash activities displayed on the statement of cash flows.Financing activities often refers to the cash flows from financing activities, which is one of the three main sections of the statement of cash flows. For example:

• Borrowing and repaying short-term loans
• Borrowing and repaying long-term loans and other long-term liabilities
• Issuing or reacquiring its own shares of common and preferred stock
• Paying cash dividends on its capital stock