Investing activities comprise the second section of the cash flow statement where it is representing the cash inflow and outflow of the business.
This inflow and outflow of cash can be obtained by investing in non-current assets such as PPE (Plant, Property and Equipment), investment in securities and from the sale of assets and securities, acquisition of other businesses.
Cash flow from investing activities deals with the cash inflow and outflow related to sale and purchase of assets, loan amount received from customers or the one taken from the suppliers and any other payments that are related to any kind of merger and acquisitions.
Investing Activities in Accounting
The following activities are involved in the investing activities:
1. Capital expenditures such as property, plant and equipment.
2. Money obtained from the selling of property, plant and equipment.
3. Acquisition or merger of two businesses
4. Funds obtained from the sale of other businesses
5. Purchasing of marketable securities such as bonds, stocks, etc.
6. Sale of marketable securities
Positive and Negative Cash Flow
Positive cash flow means the inflow of cash is more than the outflow of cash, while a negative cash flow indicates that the inflow of cash is less than the outflow of cash.
Following are some of the examples of positive and negative cash flow statements.
- Purchasing of fixed assets result in negative cash flow.
- Purchasing of any kind of bonds, debentures, stock and any such instrument results in negative cash flow.
- Sale or leasing of fixed assets results in positive cash flow.
- Sale of securities results in positive cash flow.
Examples of Cash Inflow and Outflow
Following are some examples of cash inflows:
1. Proceeds obtained from the disposal of fixed assets such as property, plant and equipment.
2. Cash receipts obtained from disposal of the debt instruments of other business entities.
3. Receipts from sale of equity instruments of the acquired businesses.
Following are some of the examples of cash outflows:
1. Payments made for the acquisition of property, plant and equipment
2. Payments made for purchasing debt instruments from other businesses
3. Payments made towards purchasing equity instruments from other businesses.
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