Lesson 69: Cash Flow Statement- Investing and Financing Activities
In this lesson, we will finish preparing the cash flow statement,
by recording investing and financing activities on the cash flow statement.
Let's finish up the cash flow statement preparation by figuring out how to
record the long term investments first and then recording the financing
activities of bonds payable and common shares.
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Let's start off by looking at the balance sheet for the values of equipment and
land that will be carried over to the cash flow statement. From 2012 to 2013,
the equipment account increased by $32,000 and the land increased by $50,000.
We would first need to
add a new section on the cash flow statement for the cash from investing
accounts. Next, we would list the purchase of equipment which we would
abbreviate as P. Equipment. Since we are increasing the long term asset and
using cash, this entry would be considered a use and the $32,000 deducted from
the cash flow statement.
The second entry for investing activities would be the land which is also
considered an increase in the assets and a use of cash. The $50,000 cash used
to purchase the land would also be deducted from the cash flow statement.
To conclude the investing activities section of the cash flow statement, we
would total up the two investing entries to give us a negative figure of $
(82,000).
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Let's proceed to the final section of the cash flow statement to
record the financing activities.
The two items that we will be recording in
the financing activities section is the bonds payable and common shares. Let's
start with the bonds payable that went up $30,000 from 2012 to 2013 on the
balance sheet.
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We will add a third section for cash from financing and
then list the bonds payable as a source. Since the bonds payable is increasing,
we would be receiving cash in return from
the bond holders. The increase would then be recorded as an increase on the
cash flow statement.
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The next item would be the common shares which increased $100,000 according to
the balance sheet. This would also be an increase in cash as a result of the
common shares issued by the company, therefore we are recording a source. The
$100,000 would be added on the cash flow statement.
We would total the amounts of the bonds payable and
common shares issued to come up with a total amount for cash from
financing of $130,000.
The final step of the cash flow statement, is to
come up with the change in cash and beginning and ending cash balances. The
change in cash is calculated by summing up the three sections of cash from
operating, cash from investing and cash from financing. This would give us a
change in cash of $258,000. The cash at the beginning was $0 and the cash at
the ending cash balance would be $258,000.
This example concludes the end of the cash flow statement preparation and
hopefully now you have a better understanding of how a cash flow statement is
created.