Types of Business Activities

Business activities are classified into operating, investing and financing activities.
Operating activities

Operating activities include the following transactions:

  • Issuance of stock
  • Borrowings from a bank
  • Issuance of bonds payable
  • Repayment of borrowings
  • Repayment of bonds payable
  • Purchase of entity’s own stock
  • Cash dividend, stock dividend
Investing activities

Investing activities include the following transactions:

  • Purchase of property, plant and equipment
  • Sale of property, plant and equipment
  • Purchase of securities issued by other entities
  • Sale of securities issued by other entities
  • Purchase of intangible assets
  • Sale of intangible assets
Financing activities

Financing activities include the following transactions:

  • Issuance of stock and bonds
  • Borrowings from creditors
  • Repayment of the borrowings from creditors
  • Repayment of bonds payable
  • Repurchase of the entity’s own stock
Review Questions

 

1. What are the typical forms of business organizations?
Sole proprietorship, partnership and corporation
2. What are the characteristics of a sole proprietorship?

  • Owner and business are not separated
  • Business is not a separate entity
  • Owner has unlimited liability for business obligations
  • Appropriate for small operations
3. What are the characteristics of a partnership?

  • More than one partners own the business together
  • Business is not a separate entity
  • General partners have unlimited liability for business obligations
  • Limited partners have limited liability for business obligations
  • Income from partnership is transferred to partners
  • Partners pay individual income tax on the income from partnership
4. What are the characteristics of a corporation?

  • Business is a separate entity
  • Owners of a corporation are stockholders
  • Stockholders have limited liability up to the amount invested in stock
  • Raising a large capital is easier for a corporation
  • Income from a corporation is taxed twice
  • A corporation pays corporate income tax on its income
  • Stockholders pay individual income on dividend income
5. What are the advantages of a corporation?

  • Stockholders have limited liability up to the amount invested in stock
  • Raising a large capital is easier for a corporation
6. What are the disadvantages of a corporation?
Income from a corporation is taxed twice
7. What are the types of business activities?
Operating activities, investing activities and financing activities
8. What are the examples of operating activities?

  • Purchase of merchandise, raw materials and supplies
  • Sale of goods and merchandise
  • Providing services to customers
  • Payment of operating expenses
9. What are the examples of investing activities?

  • Purchase of land, buildings and equipment
  • Purchase of stock and bonds issued by other entities
  • Sale of land, buildings and equipment
  • Sales of stock and bonds issued by other entities
10. What are the examples of financing activities?

  • Issuance of stock and bonds
  • Borrowings from creditors
  • Repayment of the borrowings from creditors
  • Repayment of bonds payable
  • Repurchase of the entity’s own stock

 

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