For financial enterprises (banks, NBFCs, financial institutions), cash advances and loans form part of their principal revenue-generating activities.
Since lending money and providing advances constitute the core business operations of financial enterprises, these transactions are classified as Operating Activity in their Cash Flow Statement.
This treatment differs from non-financial enterprises where:
- Loans and advances given → Investing Activity
- Loans and advances received → Financing Activity
However, for entities whose business model revolves around lending (financial enterprises), the same transactions become part of their day-to-day operations, similar to how inventory purchase is an operating activity for a trading company.
Correct Option: 2 (Operating Activity)