Noncash Investing and Financing

When important investing and financing activities do not affect cash receipts or payments, they are still disclosed at the bottom of the statement of cash flows or in a note to the statement because of their importance and the full-disclosure principle. One example of such a transaction is the purchase of long-term assets using a long-term note payable (loan). This transaction involves both investing and financing activities but does not affect any cash inflow or outflow and is not reported in any of the three sections of the statement of cash flows. This disclosure rule also extends to transactions with partial cash receipts or payments.

Point: A stock dividend transaction involving a transfer from retained earnings to common stock or a credit to contributed capital is not considered a noncash investing and financing activity because the company receives no consideration for shares issued.

To illustrate, assume that Goorin purchases land for $12,000 by paying $5,000 cash and trading in used equipment worth $7,000. The investing section of the statement of cash flows reports only the $5,000 cash outflow for the land purchase. The $12,000 investing transaction is only partially described in the body of the statement of cash flows, yet this information is potentially important to users because it changes the makeup of assets. Goorin could either describe the transaction in a footnote or include information at the bottom of its statement that lists the $12,000 land purchase along with the cash financing of $5,000 and a $7,000 trade-in of equipment. As another example, Borg Co. acquired $900,000 of assets in exchange for $200,000 cash and a $700,000 long-term note, which should be reported as follows:




Exhibit 16.4 lists transactions commonly disclosed as noncash investing and financing activities.

EXHIBIT 16.4 Examples of Noncash Investing and Financing Activities