Question

During the year, Next Tec Corp. had the following cash flows: receipt from customers, $12,000; receipt from the bank for long-term borrowing, $7,500; payment to suppliers, $5,400; payment of dividends; $1,500, payment to workers, $2,600; and payment for machinery, $11,500. What amount would be reported for net financing cash flows in the statement of cash flows

Answer 1

Answer: $6000

Explanation:

Financing activities are all activities that a corporation undertakes to affect the company's long-term liabilities or equity.

You list the following activities

• receipts from customers
• receipt from bank for long-term borrowing
• payment to suppliers
• payment of dividends
• payment to workers
• payment for machinery

Any receipts to customers or payments to suppliers are short-term reimbursements for labor or purchase of product, and as such are not included in the financing activity cash flows. Your payments for machinery are not financing activities either as machinery is not considered a liability, rather, it is an asset for the company.

However, your receipt from the bank for long-term borrowing and payments of dividends affect both long-term liabilities and equity, and those are reflected on the financing cash flows as such

Receipts from the bank for long-term borrowing - $7500

Payment of dividends                                             - ($1500)

Net cash flows from financing activities                - $6000