The statement of cash flows reports a company’s gains and losses specifically relating to cash. Stakeholders find this statement informative because cash is king in business. Common stock falls under the third section on the statement of cash flows, called financing activities. Specific information for common stock goes in this section.
Financing activities on the statement of cash flows represent cash received from borrowed funds. Additionally, cash received from issuing stock also increases the cash receipts for this section. Payments to repay dividends, purchase treasury stock and pay dividends are the cash outflows for this section.
A company’s balance sheet holds information relating to common stock issuance. Accountants must review the balance sheet and list the amount of cash earned on the statement of cash flows that mirrors the increase in common stock account. Treasury stock purchases and dividend payments also come from the balance sheet. The changes in these accounts are entered on the statement of cash flows to report cash outflows.
A company’s financing activities are the third section reported on the statement of cash flows. Each specific activity has its own line on the statement. The actual amount of cash received or paid out represents the net figure for the financing activities section. No specific general ledger accounts are put in this section, only the activities described previously.
Buying another company’s common stock is an investing activity, not a financing activity. Receiving dividends on stock investments is an operating activity. These payments represent an increase to cash from operating activities under standard accounting principles.