Investing Activities Flashcards
What does a company do after it raises money through financing activities?
It uses the money it raised for investing activities.
What do investing activities involve?
It involves the purchase (or sale) of long-lived assets that a company needs in order to operate.
What are assets?
What is future economic benefit?
Assets are resources that a company owns or controls. Every asset is capable of providing future economic benefits that can be short- or long-lived.
Google: future economic benefit is capability or potential of asset to generate cash flows (in form of cash and cash equivalents) for the entity. Asset can generate cash flows either by contributing to cash flow generation or by having the capacity to be readily converted into cash and cash equivalents.
Investing activities generally involve short- or long-lived assets?
Long-lived assets. For example, mining equipment, computers, vehicles, buildings, and land are all examples of long-lived assets that result from investing activities. Together, they are referred to as property, plant and equipment.
Property, plant and equipment are also known as?
AKA capital assets or fixed assets
Is cash an asset? When a company has excess cash it doesn’t need for a while, what do they do?
Yes. The company might choose to invest it in debt securities (e.g., bonds) or equity securities (e.g., shares) of other corporations or organizations- these are called investments.
Investments can be either short- or long-term. Why are short-term investments generally considered an operating activity? What about long-term investments and what does it mean?
With a few exceptions, short-term investments are generally classified as operating activities as they are incurred for the purpose of trading as part of the company’s revenue-producing activities.
Long-term investments are generally classified as investing activities. Investing activities doesn’t mean “investments” only. Investing activities means investing in the long-lived assets necessary to run the company and not just purchasing an investment on which to earn a return for the long-term, such as interest or dividends.
