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Financing Activities

Brian Krogol
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Alright. So on this page we have some financial information for abc company. We've got, we start here with the comparative balance sheet that shows balances for 2018 and 2017. And remember when we're dealing with the financing activities, we're gonna want to focus on our long term liabilities, Our long term liabilities and our stockholders equity. Right? So in this case we're gonna have bonds payable, we're gonna have common stock and retained earnings are important accounts that we're gonna be dealing with here. Okay? So why don't we go ahead and check what the changes were in these accounts and if there were changes we can expect there were some cash flows related to it. So bonds payable, we're 20,000 last year and they went up to 130,000. So that was an increase of 100 and 10,000 in our bonds payable account. Right? It increased by 110,000. So that's a sign that we had some inflow of cash. Right? We we put out more bonds payable and we in flowed cash by taking on this liability. How about common stock? Common stock also increased here by 20,000. It was 60,000 last year. And now it's 80,000. So it increased by 20,000. We would expect there would be some sort of inflow of cash. We issued some stock to increase our cash there. And how about retained earnings? Why would retained earnings matter here because of dividends? Right, we would have some sort of dividend account that would be affecting our retained earnings. So it was 48,000 last year and it went up to 164,000. That increase was 116,000 was the increase in our retained earnings. But we would expect that to have some net income in it as well as dividends paid. Cool. So I don't think we're gonna see anything important on our income statement related to financing activities because all we're worried about is those principal amounts of our long term liabilities, such as repayment or sale of new bonds or long term liabilities as well as our equity transactions. And those equity transactions aren't gonna show up here on the income statement. So let's go ahead and go to our example where we're gonna be given some additional information related to this uh related to this question. So we're looking for cash provided by financing activities using the financial information on the previous page, as well as this additional information. So the company sold equipment with a book value of 7000 cost 8000 less accumulated depreciation for 4000 in cash. That sounds like an investing activity. Right? We're dealing with investing activities there because that's the sale of a long term asset. That has nothing to do with financing activities. The company issued 100 10,000 of long term bonds. So that sounds important to us, right? They issued 100 10,000 for long term bonds and use the proceeds to purchase land. So the proceeds to purchase land that would be investing. But we don't really care about that. We're we're focused on this this financing activity where we issued long term bonds. The company purchased new equipment totaling 145,000. That's not important either. Right? That is an investing activity. The company issued common stock for $20,000 cash. That is important. Right? We're talking about common stock. So we do have a financing activity here. And how about the last one the company declared and paid a $29,000 cash dividend. So when we're paying dividends, that is also a financing activity. So it sounds like we've got a few financing activities here. We can also double check when we look at the changes in those accounts to make sure that we've dealt with everything. So first we had the issuance of long term bonds, so issued bonds and that's an inflow of cash, right? We we had an inflow of 100 and 10,000 because we issued bonds and we got cash now and we'll repay that principal at a later date. We also issued common stock. So if we issued common stock, that means we received cash as well. So I put issued C. S. That's gonna be 20,000 of cash inflow. And the company declared and paid a dividend of 29,000. So if we declare the dividend and paid, we paid dividends. Well that's going to decrease our cash, right? That's an outflow of cash cash. 29,000. And what's that kind of come out to? That's everything we see here. It's 100 and 10 plus the 20 minus the 29,000. We had an inflow of 100 and 1000 from financing activities. So that was noticed. It's positive. So that was an inflow of cash of 101,000. Now let's double check that each of those accounts have been accounted for. We had 100 and $10,000 increase in our bonds account. And that's because we issued these bonds. Right? So notice our bonds account increased by 110,000. And that's directly related to what we saw on our cash flow statement. So that looks good. How about our common stock? It says we issued common stock for 20,000. And that's exactly what we saw for the common stock as well. Right. We saw an increase of 20,000. So that checks out. But what about retained earnings, retained earnings increased by 100 16,000. Let's go ahead and make a T. Account for retained earnings. So I'm gonna make a T account right here on the side for retained earnings. And remember we're gonna have some beginning balance as a credit, then we're gonna increase it with our net income, We're gonna pay dividends that will decrease our retained earnings and that will get us to our ending balance and retained earnings. Cool. So let's go up and let's see what these balances were. The beginning and ending balance says retained earnings, beginning balances for 48,000 and it went up to 164,000. So let's go ahead and put those in here 48,000 and it went up to 100 and 64,000. Cool. So those are our beginning and ending balances. How about net income that will come from the income statement? Right? So if we look on the income statement, it tells us net income was 100 and 45,000 right here. 145,000. So we can put that into our T account right here. 145,000. And it told us that there was 29,000 in dividends. So that should totally work out here. Let's go ahead and make sure that all our numbers work out just just to be 100% sure that everything is done. 48,000 plus 145,000 minus the 29,000 and dividends gets us to the ending balance of 100 and 64,000. So it looks like we've accounted for everything. We looked at all our long term liability accounts, all our equity accounts and we've accounted for all the changes in those accounts. And that ends us with this financing activity increase of 101,000. So now that we've dealt with the operating activities, investing activities and financing activities, you can put it all together to make a cash flow statement, right? We would find the change from operation, operating activities change from investing activities, change from financing activities. And that will be the total change in cash during the period. Cool, Alright, let's pause here and do some practice.