Q14-12RQ - Horngren'S Financial And Managerial Accounting

Question

Question: What accounts on the balance sheet must be evaluated when completing the financing activities section of the statement of cash flows?

Step-by-Step Solution

Answer

Answer

 

Financing activity records transactions related to long-term liabilities and equity.

Step 1: Evaluating T-accounts of long-term liabilities

While computing cash generated from or used for financing activities it is important to evaluate the T-accounts of each long-term liability. Opening and closing balances of each long-term liability can be directly picked up from the balance sheet

Step 2: Evaluating T-accounts of equity

Issuance of new common stock, Buy-back of existing common stock, dividend paid, etc. are a few examples of transactions that should be recorded while computing cash flow from financing activity.