Cash Flows From Financing Activities: Quick Explanation
The Cash Flows From Financing section of the statement of cash flows includes cash inflows and outflows from
- issuance of stock (common and preferred),
- repurchase of the company's own stock (treasury stock),
- payment of dividends,
- long-term borrowing, and
- repayment of long-term debt.
This page will briefly show you the Cash Flows From Financing section of the statement of cash flows for Lucky 7, Inc. This lesson will later provide a detailed explanation of the section.
Lucky 7 had the following transactions related to financing activities (continued from earlier):
- The company purchased $50,000 of plant assets in exchange for notes payable. This is a non-cash transaction.
- In this transaction, no cash exchanged hands. This transaction does not belong in the Cash Flows From Investing Activities section of the statement of cash flows. This transaction will be shown separately in the schedule of non-cash investing and financing transactions.
- The company repaid $75,000 of notes payable.
- In this transaction, the company paid notes payable for a total of $75,000 (cash outflow).
- The company borrowed $125,000 cash, signing a long-term note payable.
- In this transaction, the company borrowed $125,000 (cash inflow).
- The company issued 10,000 shares of $5.00 par value common stock for $9.97.
- In this transaction, the company sold 10,000 shares of stock for $9.97 per share, receiving a total of $99,700 in cash (cash inflow).
- The company paid a $4,000 dividend (cash outflow).
- The company purchased 10,000 shares of treasury stock for $12,500.
- In this transaction, the company purchased shares of its own stock for $12,500 (cash outflow).
Assuming that these were the only transactions that affected long-term assets, you would prepare the Cash Flows From Investing Activities section of the statement of cash flows as follows:
Cash Flows From Investing Activities
| Cash payment of notes payable | ($75,000) |
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|
| Cash receipt from issuance of notes payable | $125,000 |
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|
| Cash receipt from the issuance of common stock | $99,700 |
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|
| Cash payment of dividends | ($4,000) |
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|
| Cash payment for the purchase of treasury stock | ($12,500) |
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|
|
Net cash flows from financing activities
|
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| $133,200 |
A full explanation for the cash flows from financing activities is shown later in the lesson.
