Cash Flows from Financing Activities PDF

Cash Flows from Financing Activities Financing activities affect the long-term liability and equity accounts, such as Long-term Notes Payable, Bonds Payable, Common Stock, and Retained Earnings. To determine the cash flows from financing activities, we need to review each of these account types....

Cash Flows from Financing Activities Financing activities affect the long-term liability and equity accounts, such as Long-term Notes Payable, Bonds Payable, Common Stock, and Retained Earnings. To determine the cash flows from financing activities, we need to review each of these account types. Long-term Liabilities The T-account for ShopMart’s Notes Payable is shown below. Additional information con-cerning notes payable is also provided by the company as follows: Received $90,000 cash from issuance of notes payable. Paid $10,000 cash to retire notes payable The cash inflow and cash outflow associated with these notes payable are listed first in the cash flows from financing activities section. Common Stock and Treasury Stock Cash flows for financing activities are also determined by analyzing the stock accounts. For example, the amount of new issuances of stock is determined by analyzing the stock accounts and reviewing the additional information provided: Received $120,000 cash from issuing shares of common stock. Paid $20,000 cash for purchase of shares of treasury stock The common stock account shows a new stock issuance of $120,000 and would be recorded by the following journal entry: Cash Debit, Common Stock Credit, 120,000 This is shown as $120,000 cash inflow in the financing activities section of the statement. Treasury stock also changed on ShopMart’s balance sheet. The T-account is showing an acquisition of treasury stock that would be recorded as follows: treasury stock debit and cash credit, 20,000 The $20,000 is shown as a cash outflow in the financing section of the statement of cash flows for the purchase of treasury stock. In order for the cash dividends to be reported on the statement of cash flows, the company must have paid the dividends. In this case, we know the cash dividends are paid because there are no dividends payable reported on ShopMart’s balance sheet. Companies can also distribute stock dividends. A stock dividend has no effect on Cash and is not reported in the financing activities section of the statement of cash flows. ShopMart had no stock dividends, only cash dividends, which will be shown as an outflow in the financing activities section of the statement of cash flows. Net Change in Cash and Cash Balances To complete the statement of cash flows, the net change in cash and its effect on the begin-ning cash balance must be shown. This represents the total change in cash for the period and reconciles the statement of cash flows. First, the net increase or decrease in cash is computed by combining the cash provided by or used for operating, investing, and financ-ing activities. In the case of ShopMart, there is a net decrease in the cash balance of $20,000 for the year and is calculated as follows: Net increase (decrease) in cash=Net cash provided by operating activities-Net cash used for investing activities +Net cash provided by financing activities =$70,000-$260,000+$170,000 =$(20,000) Next, the beginning cash from December 31, 2023, is listed at $42,000, as shown on the comparative balance sheet. The net decrease of $20,000 is subtracted from beginning cash of $42,000, which equals the ending cash balance on December 31, 2024, of $22,000. This is the key to the statement of cash flows—it explains why the cash balance for Shop-Mart decreased by $20,000, even though the company reported net income for the year