The statement of cash flows reports a company’s cash sources and use, with three sections for operating, investing, and financing activities. Financing activities include borrowing, issuing shares, and debt repayment, with cash inflows and outflows reported monthly. Non-cash items are reported separately.
The statement of cash flows reports the sources and use of a company’s cash. In this declaration, three sections with specific activities are reported: operation, investment and financing. The last section includes cash flow from financing activities, such as borrowing money, issuing shares, and paying off debt, among others. Large companies, often publicly traded ones, often have the most activity in this section, although smaller companies may have them as well. Companies generally report these activities on a monthly basis.
When reporting cash flow from financing activities, the section is usually the last to be reported on the statement of cash flows. In most cases, this section has the least amount of activity among the three sections. External stakeholders may also not have as much interest in these numbers as compared to investing or operating activities. Cash flow from financing activities only occurs when a company seeks funds from external sources to operate the business. Loans and shares are the two main sources.
Cash inflows represent any payment a business receives from outside sources. Again, the most common activities here are loans received for a specific use and the issuance of shares when a company goes public or has a new share issue. Cash flow from financing activities reports these actions as a plus to the company’s cash account for the exact dollar amount received from any of the sources. Only cash receipts during the month received are included in this statement at this time. Repeated cash inflows over several months indicate a repeat listing in this section.
The outflows reported on the statement of cash flows in the financing section are essentially the opposite of the cash inflow items. For example, cash flows from financing activities include bank loan repayments, purchases of shares from current investors, and dividend payments to current shareholders. Most large companies have these payments infrequently; For example, debt repayment may take the form of quarterly balloon payments made to the bank. Buying shares, often referred to as treasury shares in accounting, means that a company is withdrawing shares from the open market. Dividend payments indicate that a company is spending a portion of retained earnings on investor rewards.
Certain items that may have a similar name to these items in cash flow from financing activities are not reported here. For example, the issue of land stocks is not in the financing section. The company needs to report this, and other similar items, in a separate section called important non-cash items. This section is found at the end of the statement of cash flows.
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