3.7: If a company issues $100,000 in new stock, how is this reflected in the cash flow statement?

Question

BlackTom AI · Accepted Answer

To understand where the transaction fits on the cash flow statement, we need to consider the nature of issuing new stock.
Option 1: 'Cash outflow in operating activities' would apply to cash transactions related to core business operations, such as cash paid to suppliers or cash collected from customers. Issuing stock is not an operating activity, so this is incorrect.
Option 2: 'Cash inflow in financing activities' reflects cash movements related to borrowing, repaying debt, issuing equity, or paying dividends. When a company issues new stock, it raises capital from investors, which increases cash and relates to financing decisions. This matches the described transaction.
Option 3: 'Cash outflow in investing activities' involves cash used for acquiring or selling long-term assets like property, plant, or investments. An equity issuance does not involve asset purchases or sales, so this is inaccurate.
Option 4: 'Cash adjustment in taxes' is not a standard line item category on the cash flow statement. Tax-related adjustments are typically included within operating activities or as separate disclosures, not as a distinct 'cash adjustment in taxes.' Hence this choice is not fitting.
Overall, the transaction aligns with financing activities as a cash inflow, since issuing new stock provides additional funds to the company from investors and is not part of operating or investing cash flows.

3.7: If a company issues $100,000 in new stock, how is this reflected in the cash flow statement?Single choice

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