What are some examples of financing activities?
Financing activities involve long-term liabilities and stockholders’ (or owner’s) equity. Financing activities are reported in its own section of the financial statement known as the statement of cash flows (SCF) or cash flow statement.
Examples of financing activities that involve long-term liabilities include the issuance or redemption of bonds. An increase in bonds payable is reported as a positive amount in the financing activities section of the SCF. The positive amount signifies a source of cash, or that cash was provided by issuing additional bonds. A decrease in bonds payable will be reported as a negative amount in the financing activities section of the cash flow statement. A negative amount connotes that cash was used to repurchase or redeem the corporation’s bonds.
Examples of financing activities involving stockholders’ equity include the issuance of common stock or preferred stock. Increases in these stock accounts will be reported as positive amounts in the financing activities section of the SCF. Positive amounts communicate that cash was provided by issuing more shares of stock—a source of cash. Examples of uses of cash (which are reported as negative amounts) in the financing activities section of the cash flow statement include a corporation’s purchase of its own stock, and dividends declared and paid on its stock. (The increase in retained earnings resulting from the corporation’s net income is reported in the operating activities section of the SCF.)
Learn more about the Cash Flow Statement.
About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years. He is the creator and author of all the content found on AccountingCoach.com. You can read 1,500 testimonials praising his ability to explain accounting in a way that anybody can understand.
|Learn more about AccountingCoach Pro|
Accounting Q&A by Topic
Over 800 questions have been answered in the following categories:
- Accounting Basics
- Accounting Careers
- Accounting Equation
- Accounting Principles
- Accounts Payable
- Accounts Receivable and Bad Debts Expense
- Activity Based Costing
- Adjusting Entries
- Balance Sheet
- Bank Reconciliation
- Bonds Payable
- Break-even Point
- Business Investments
- Cash Flow Statement
- Chart of Accounts
- Cost and Managerial Accounting
- Debits and Credits
- Financial Accounting
- Financial Ratios
- Improving Profits
- Income Statement
- Inventory and Cost of Goods Sold
- Lower of Cost or Market
- Manufacturing Overhead
- Nonmanufacturing Overhead
- Payroll Accounting
- Present Value of an Ordinary Annuity
- Present Value of a Single Amount
- Standard Costing
- Stockholders’ Equity