Overview
This lecture explains the main types of activities in a business organization, focusing on the inflow and outflow of economic resources and classifying activities into operating, investing, and financing types.
Flow of Economic Resources
- Business organizations experience inflow (resources received) and outflow (resources given) of economic resources.
- Inflows occur when resources (e.g., cash from customers) enter the organization.
- Outflows occur when resources (e.g., cash to suppliers) leave the organization.
- Every transaction involves an exchange, such as paying cash for office supplies (outflow) and receiving supplies (inflow).
Types of Business Activities
- Activities are categorized as operating, investing, or financing.
- Operating activities involve day-to-day resources used to produce goods/services, including purchasing supplies, manufacturing, and selling.
- Operating activities examples: buying office supplies, marketing, selling, and distribution.
- Investing activities involve the use of long-term resources, such as purchasing property or equipment.
- Financing activities are related to obtaining capital, such as borrowing from a bank or receiving investments from owners.
Key Terms & Definitions
- Inflow — Entry of economic resources (e.g., cash, supplies) into the business.
- Outflow — Exit of economic resources (e.g., cash paid to suppliers) from the business.
- Operating Activities — Transactions related to the core business operations and day-to-day processes.
- Investing Activities — Transactions involving the acquisition or disposal of long-term assets.
- Financing Activities — Transactions involved in obtaining or repaying capital, such as loans or owner investments.
Action Items / Next Steps
- Review the three types of business activities: operating, investing, and financing.
- Read more about investing activities and examples of long-term assets.