One of those three groups cash flows are presented on the statement of cash flows is \u2018Financing activities\u2019. The \u2018in\u2019 and \u2018out\u2019 flows are both presented using the direct method, which we\u2019ll cover later on in more detail, but for now, just keep it in mind. So, which cash movements are presented under financing activities and what should you look out for? <\/p>\n
When the meaning of \u2018operating\u2019 and \u2018investing\u2019 is more clear, \u2018financing\u2019 is something that is sometimes confused with \u2018investing\u2019. I have encountered in practice that the \u2018proceeds from share issuing\u2019 are presented under \u2018Investing\u2019 rather than under \u2018Financing\u2019 activities. <\/p>\n
What should help someone in classifying those flows is a simple rule. If the company itself uses its resources to acquire something and consequently sells this something, it\u2019s investing. However, if a company first off receives money from someone in the form of proceeds from shares, bonds or loans, it\u2019s financing. All this is done from one perspective \u2013 the company\u2019s one. So as a company, if it gives someone its resources, the company is investing it\u2019s assets to acquire new ones. If someone is giving money to the company, they are yes investing, but the company gets financing from investors. It\u2019s really this simple. For an example as a result, loans granted by the company are under \u2018Investing activities\u2019 and borrowings granted to the company are under \u2018Financing activities\u2019. <\/p>\n
There is of course a catch with the flows under \u2018Financing activities\u2019. There always is one, if you ask me. The outflows from \u2018Dividends paid\u2019 are sometimes under this group on the statement and sometimes under
\n\u2018Operating activities\u2019. The thought process behind this is as follows: if a company is presenting the cash flows from dividends paid as a part of operating activities, it shows that the company is able to pay to the owners from the cash generated from everyday business activities and not loans or something else. So in a nutshell, if the net cash flows from operating activities are still positive after adding the outflows from dividends, it should be shown there. That\u2019s the general rule. <\/p>\n
In short, the financing activities are the ones where company first receives money and then pays it back in the form of repayment of loans or bonds etc.<\/p>\n","protected":false},"excerpt":{"rendered":"
One of those three groups cash flows are presented on the statement of cash flows is \u2018Financing activities\u2019. The \u2018in\u2019 and \u2018out\u2019 flows are both presented using the direct method, which we\u2019ll cover later on in more detail, but for now, just keep it in mind. So, which cash movements are presented under financing activities […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28,50],"tags":[],"class_list":["post-1657","post","type-post","status-publish","format-standard","hentry","category-4-reporting","category-4-5-statement-of-cash-flows"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/1657","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=1657"}],"version-history":[{"count":4,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/1657\/revisions"}],"predecessor-version":[{"id":2530,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/1657\/revisions\/2530"}],"wp:attachment":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=1657"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=1657"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=1657"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}