Question

You are in a group of Accounting students that has been assigned to prepare a Cash Flow Statement. You are preparing the Financing activities section. Which of the following items would be included in the financing activities?

1) Issue common stock for cash

2) Payment on principal of note payable

3) Payment of dividends

4) Sale of equipment for cash

Answer 1

The following items would be included in financing activities :

1) Issue common stock for cash.

2) Payment on principal of note payable.

3) Payment of dividends.

Explanation

As such all these items are the items which are related to cash flows but are shown in cash flow statements as flow of cash from financing activities.

Financing activities are those activities shown in cash flow statement from which the company obtains cash and liabilities are either increased or decreased.

Issue of common stock for cash increase the flow of cash from financing activities.
Whereas payment on principal of note payable and payment of dividends decreases (cash paid) the flow of cash from financing activities.

Sale of equipment for cash increases (cash received) the flow of cash from investing activities. There is inflow of cash. So, this item would not be considered as flow of cash from financing activities.