Definition of Financing Activities
Financing activities often refers to the cash flows from financing activities, which is one of the three main sections of the statement of cash flows (or SCF or cash flow statement). In this section of the SCF, the company lists the cash inflows and cash outflows from:
- Borrowing and repaying short-term loans
- Borrowing and repaying long-term loans and other long-term liabilities
- Issuing or reacquiring its own shares of common and preferred stock
- Paying cash dividends on its capital stock
Examples of Financing Activities
When a company borrows money for the short-term or long-term, and when a corporation issues bonds or shares of its common or preferred stock and receives cash, the proceeds will be reported as positive amounts in the cash flows from financing activities section of the SCF. A positive amount informs the reader that cash was received and thereby increased the company’s cash and cash equivalents.
When a company repays the principal portion of its short-term or long-term loans, redeems any of its bonds payable, purchases its owns shares of capital stock (treasury stock), or pays dividends on its capital stock, the amount of cash used will be reported as negative amounts in the cash flows from financing activities section of the SCF. The negative amount informs the reader that cash was used and thereby reduced the company’s cash and cash equivalents.
