Cash Flows

Financing Activities

Financing activities includes all cash receipts and cash payments associated with raising capital and finance for the business and repayment of financing debt obligations.

Proceeds of Share Issue

Cash raised from issuing additional shares. 

 

When recording share issues in the financing section of the Cash Flows, you must include the share issue costs or a 'Net Proceeds from Share Issue' indicating clearly the share issue costs in workings. 

How to Find Proceeds of Share Issues

Information can be found in the increase in share capital. An increase share capital suggests a possible additional share issue.

This is confirmed in additional information which mentions that share issue costs were $1000, evidence a share issue has been made. The proceeds from the share issue were $6000, as share issue costs are always written off in the share capital account. Include in the cash flows the $1000 cash payment for the share issue costs. 

Difference in Share Capital = (Difference + Share Issue Costs) - Share Issue Costs

BE AWARE:

  • Shareholder's equity can also increase from an issue of bonus shares which is not an increase in cash held - this will be stated under additional information, otherwise, assume a share issue has been made

Proceeds from Borrowings

Cash received from an additional borrowings - such as those from debentures, mortgages and other non-current loans.

How to Find Proceeds from Borrowings

Information to find proceeds from borrowings can be found in the non-current liabilities section of the balance sheet. Look for increases in the balances of borrowings (could also be called debentures, mortgages or loans). An increase suggests the business had increased borrowings, increasing the level of cash and cash equivalents, therefore it is recorded in the statement of cash flows.

In the above balance sheet extract, the borrowings account increased by $2000, from $20,000 to $22,000. This suggests the business increased its cash borrowings by $2000.

Repayment of Borrowings

Non-Interest cash paid to reduce a business's debt in borrowings.

How to Find Repayment of Borrowings

Information to find proceeds from borrowings can be found in the non-current liabilities section of the balance sheet. Look for decreases in the balances of borrowings (could also be called debentures, mortgages or loans). An decrease suggests the business had repaid some of its borrowings, decreasing the level of cash and cash equivalents, therefore it is recorded in the statement of cash flows. 

Dividends Paid

Dividends paid refers to cash dividends paid to shareholders. 

How to Find Dividends Paid

If this is not given, a reconstruction of retained earnings account is required to find the total amount of dividends paid. 

The video below shows the process of reconstructing the retained earnings account.

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