Accounting - Study Mode

Explanation

Solution: When we talk about the flow of funds, we refer to the movement of cash or liquid assets between parties. Let’s analyze each option: Option A: Issue of shares for cash → Correct. In this case, the company receives cash from the investors in exchange for shares. This is a direct flow of funds, as cash is coming into the company. Option B: Payment of bonus in shares → Incorrect. Here, the company is issuing shares as a bonus rather than paying in cash. Although this transaction involves a change in the company’s equity, it does not involve an actual flow of funds. Option C: Cash paid to creditors → Incorrect. While cash is leaving the company, this is a payment for an obligation rather than a new source of funds coming in or out, so it is not considered a flow of funds in the sense of generating new capital. Option D: Purchase of building in exchange of land → Incorrect. This is a non-cash transaction. The company is exchanging land for a building, and there is no flow of cash involved. Thus, the correct answer is Option A: Issue of shares for cash , as it directly involves a flow of cash into the company.