Definition: Investing activities are the second main category of net cash activities listed on the statement of cash flows and consist of buying and selling long-term assets and other investments. In other words, this is the net amount of cash received and paid during an accounting period for long-term assets and investments. You can think of these activities like the money a company uses to invest in itself or the money it makes from its investments.
What Does Investing Activities Mean?
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The two main activities that fall in the investing section are long-term assets and investments. Long-term assets usually consist of fixed assets like vehicles, buildings, and machinery. When a company purchases a new vehicle with cash, the cash outflows are listed in the investing section. Likewise, if a company sells one of its vehicles, the cash proceeds are listed in this section as well.
Investments are a little more complicated than the long-term assets because it depends on the source of the investment. For example, cash paid for short-term investments like trading securities and cash equivalents are included in this section. Principle payments on third party notes are also included. However, payments on a note payable from a customer that resulted in a sale are typically listed in the operating activities section—not the investing. Likewise, FASB requires that all interest payments and receipts be classified as operating activities.
Example
Here’s a short list of common cash inflows and outflows listing in the investing section of the cash flows statement.
- Inflows
- Cash collected from:
- Selling trading, held for sale, and available for sale securities
- Selling discounted notes
- Selling long-term productive assets
- Collecting principle on third party notes that don’t generate sales
- Outflows
- Cash paid to:
- Purchase trading, held for sale, and available for sale securities
- Purchase long-term productive assets
- Pay principle on third party notes that don’t generate sales