Crime Against Humanity: the Holy GAAP, 18

Lastly, a minor remark: the IAS/IFRS cover any type of entity, but banks are different. Fortunately, it is minor because it does not affect our analysis, and I mention it only for the sake of completeness and to prevent a potential source of confusion. IAS 7, in paragraph 6, defines three types of activity:
“Operating activities are the principal revenue−producing activities of the entity and other activities that are not investing or financing activities.
Investing activities are the acquisition and disposal of long−term assets and other investments not included in cash equivalents.
Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.”
So, if I grow potatoes, growing and selling potatoes is my operating activity, using my savings to buy machinery or a share in my friend’s business is my investimg activity, and selling shares of my business or borrowing funds, say, from a banker, to buy seed is my financing activity.
Conversely, the same “funds” I borrowed, for the banker who loaned them to me, are his operating activity. That is, the difference between the other types of entities and the banker is that loans are financing activities for the other entities and operating activities for the banker. However, as I said, this difference does not affect our analysis.

It has been said that repetita iuvant, repetitions are beneficial: that the understanding of a subject is proportional to the number ot times one studies it, and that’s a reason why, now that we’ve put the ducks in a row, we step back, give them a new overall look, and start connecting the dots.