If a company issues stocks or bonds for cash and then pays off the debt, the transaction is reported in the financing section of the statement of cash flows.

If the transaction is a direct conversion of debt to equity (shares of stock) or debt to bonds and no cash receipts or cash payments occur, the transaction is to be disclosed as supplementary information.

This situation and other noncash financing and investing activities are described in Paragraph 32 of the Statement of Financial Accounting Standards No. 95, Statement of Cash Flows, available at www.FASB.org/st.

Learn more about preparing the statement of cash flows under the indirect method.

Learn more about Bonds Payable.

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 of the AccountingCoach Pro which has been praised for its ability to simplify accounting in a way that anybody can understand.

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