As it happens, there may be situations where owners and investors make payments into the company. It could be that there is a need for extra capital to meet regulatory requirements, need for extra financing to close a certain deal or simply little extra is needed for either keeping the business going or expanding a bit. Either way, the owners may every now and then make the payments into the company.

Those payments are never ever part of the income statement, but as they are inflow of cash (provided the payment wasn’t done in the form of any other type of asset), they are shown on the statement of cash flows obviously.

Now another question is where they are classified under. When you think about the pure purpose of those payments – it’s either extra resources needed for expanding, keeping operations going, buying assets etc. – they key word being “financing” here.

When we say that this cash flow comes from financing, it’s obviously a cash flow from financing activities. So hence those payments should always be classified under financing activities on the statement of cash flows. You might think that just because the funds are being used for operating activities or even investing, you could classify them under those, but in fact, the sole purpose behind those payments is financing certain activities.