Preparing the Financing Activities

Financing activities refer to transactions between a business and its owners or creditors that affect the company’s capital structure.

These transactions are reported under the financing activities in the cash flow statement and affect the company’s overall cash position.

For instance, consider Burger Spot, a burger chain planning to expand and needs funding.

The company issues new shares and secures a bank loan to raise capital.

It receives five hundred thousand dollars from the share issuance and two hundred and fifty thousand dollars from the loan.

These transactions are recorded as cash inflows under financing activities.

Meanwhile, Burger Spot repays a previous loan of one hundred and fifty thousand dollars and distributes fifty thousand dollars in dividends to its shareholders.

These are recorded as cash outflows under financing activities.

The company reports cash inflows of seven hundred fifty thousand dollars and outflows of two hundred thousand dollars.

This results in a positive net cash flow from financing activities of five hundred and fifty thousand dollars.