non-cash financing activities

(noun)

Non-cash financing activities may include leasing to purchase an asset, converting debt to equity, exchanging non-cash assets or liabilities for other non-cash assets or liabilities, and issuing shares in exchange for assets.

Examples of non-cash financing activities in the following topics:

  • Reporting Financing Activities

    • Reporting financing activities involves determining if cash is received or paid out due to financing activities such as issuing stock or paying dividends.
    • Extending credit is an investing activity, so all cash flows related to that loan fall under cash flows from investing activities, not financing activities.
    • Non-cash financing activities may also be included on the cash flow statement as footnotes.
    • Non-cash financing activities may include:
    • Exchanging non-cash assets or liabilities for other non-cash assets or liabilities; and

  • Components of the Statement of Cash Flows

    • The cash flow statement has 3 parts: operating, investing, and financing activities.
    • There can also be a disclosure of non-cash activities.
    • Non-cash investing and financing activities are disclosed in footnotes to the financial statements.
    • Non-cash financing activities may include leasing to purchase an asset, converting debt to equity, exchanging non-cash assets or liabilities for other non-cash assets or liabilities, and issuing shares in exchange for assets.
    • Statement of cash flows includes cash flows from operating, financing and investing activities.

  • Cash Flow from Financing

    • Cash flows from financing activities arise from the borrowing, repaying, or raising of money.
    • Financing activities can be seen in changes in non-current liabilities and in changes in equity in the change-in-equity statement.
    • Everything concerning the loan is a financing activity.
    • Extending credit is an investing activity, so all cash flows related to that loan fall under cash flows from investing activities, not financing activities.
    • As is the case with operating and investing activities, not all financing activities impact the cash flow statement -- only those that involve the exchange of cash do.

  • Cash Flow from Investing

    • Cash flow from investing results from activities related to the purchase or sale of assets or investments made by the company.
    • An investing activity is anything that has to do with changes in non-current assets -- including property and equipment, and investment of cash into shares of stock, foreign currency, or government bonds -- and return on investment -- including dividends from investment in other entities and gains from sale of non-current assets.
    • However, this cash flow is not representative of an investing activity on the part of the company.
    • Therefore, paying out a dividend is a financing activity.
    • It is important to remember that, as with all cash flows, an investing activity only appears on the cash flow statement if there is an immediate exchange of cash.

  • Reporting Investing Activities

    • Cash flows due to changes in non-current assets or returns on investments must be determined to be inflows or outflows in order to be reported properly.
    • An investing activity is anything that has to do with changes in non-current assets -- including property and equipment, and investment of cash into shares of stock, foreign currency, or government bonds -- and return on investment -- including dividends from investment in other entities and gains from sale of non-current assets.
    • However, this cash flow is not representative of an investing activity on the part of the company.
    • The investing activity was undertaken by the shareholder; therefore, paying out a dividend is a financing activity.
    • When reporting investing activities, it is important to be able to decipher a cash inflow from a cash outflow.

  • Cash Flow Factors

    • Cash flow factors are the operational, financial, or investment activities which cause cash to enter or leave the organization.
    • Operational cash flows: Cash received or expended as a result of the company's internal business activities.
    • Financing cash flows: Cash received from the issue of debt and equity, or paid out as dividends, share repurchases or debt repayments.
    • In such a case, the company may be deriving additional operating cash by issuing shares or raising additional debt finance.
    • When net income is composed of large non-cash items, it is considered low quality.

  • Limitations of the Statement of Cash Flows

    • The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments.
    • These non-cash transactions include depreciation or write-offs on bad debts or credit losses.
    • As a cash flow statement is based on the cash basis of accounting, it ignores the basic accounting concept of accrual.
    • Cash flow statements are not suitable for judging the profitability of a firm, as non-cash charges are ignored while calculating cash flows from operating activities.
    • The statement of cash flows includes cash flows from operating, investing and financing activities.

  • Receipts

    • A cash receipt is a term used to describe cash flowing into a business .
    • In terms of cash flow forecasting, we typically think of cash receipts as:
    • When cash is received for the sale, the firm pays the financing company.
    • A company needs to understand the timing involved with cash-producing or cash-depleting activities before it can properly plan for cash flows.
    • Describe how a company can use its cash receipts to receive short-term financing

  • Cash Flow from Operations

    • It refers to the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securities (these are investing or financing activities).
    • Cash flows from operating activities can be calculated and disclosed on the cash flow statement using the direct or indirect method.
    • Under GAAP, a loan payment would have to be broken down into two parts: the payment on principal (financing) and the payment of interest (operating).
    • Under IFRS, it is possible to categorize both as financing cash flows.
    • Operating cash flows, like financing and investing cash flows, are only accrued when cash actually changes hands, not when the deal is made.

  • Accounting Flows and Cash Flows

    • In such a case, the company may be deriving additional operating cash by issuing shares or raising additional debt finance.
    • When net income is composed of large non-cash items it is considered low quality.
    • Operational cash flows: Cash received or expended as a result of the company's internal business activities.
    • It includes cash earnings plus changes to working capital.
    • Financing cash flows: Cash received from the issue of debt and equity, or paid out as dividends, share repurchases or debt repayments.