Financial Accounting · Statement of cash flows (excluding partnerships)

Cash Flows from Financing Activities in the ACCA Statement of Cash Flows

Updated 11 October 2026 · Fact-checked

Financing activities show cash raised from or paid to owners and lenders. Include cash from share issues (par value plus premium), loans raised, loan repayments and dividends paid. Work from the movement in each statement of financial position balance, remove non-cash items such as bonus issues and revaluations, then add the net figure.

Understand Cash Flows from Financing Activities

A company needs funds to operate. It gets them from owners (shares) and lenders (loans). The financing activities section of the statement of cash flows (IAS 7) shows how those cash flows changed during the year.

The section answers one question: how much cash came in from, or went out to, the providers of finance? Cash going out includes loan repayments and dividends paid to shareholders. Cash coming in includes proceeds from new shares and new loans.

In the exam you rarely get the cash figure directly. You get two statements of financial position and some notes. So you must rebuild the cash figure from the movement in share capital, share premium, loans and retained earnings.

The key trap is non-cash movements. A bonus issue increases share capital but no cash arrives. It is paid for out of reserves such as share premium or retained earnings. If it comes out of share premium, the rise in share capital and the fall in share premium cancel out within the total, so you do not adjust for it. If it comes out of retained earnings or another reserve outside share capital and premium, the total rises with no cash, so you must remove it. A revaluation increases a revaluation reserve but involves no cash. It does not belong in the cash flow statement.

Also remember that interest paid is a finance cost. IAS 7 permits interest paid to be shown in either operating or financing activities. Follow the question's instruction or the layout it gives you. Dividends paid are shown in financing activities.

Key formulas to remember

Cash from share issue: (Closing share capital + closing share premium) − (opening share capital + opening share premium) − any bonus issue funded from reserves outside share capital and share premium (e.g. retained earnings); A bonus issue funded from share premium nets to nil within the total, so do not subtract it. If there is no bonus issue, the total movement is the cash raised. Any rights issue at a price is cash.
Loan movement: Closing loans − opening loans = loans raised − loans repaid; Positive net movement is an inflow. Negative is an outflow. Include only the capital amount, not accrued interest.
Dividends paid (retained earnings working): Opening retained earnings + profit for the year − dividends declared = closing retained earnings, so dividends = opening + profit − closing; Use profit after tax. Check for transfers to or from other reserves.
Dividends paid in cash (with dividend payable): Dividends paid = opening dividend payable + dividends declared − closing dividend payable; Use this when a dividend is declared but unpaid at the year end.
Net cash from financing activities: Share proceeds + loans raised − loans repaid − dividends paid; Show inflows as positive, outflows in brackets.

How to solve Cash Flows from Financing Activities questions

Use this method for any financing question. Work line by line and keep a short working for each.

1List the opening and closing figures for share capital, share premium, revaluation reserve, retained earnings and loans.
2Read the notes for non-cash items: bonus issue, revaluation, conversion of loans into shares, or capitalised reserves.
3Work out cash from shares: total movement in share capital plus share premium, less any bonus issue funded from reserves outside those two accounts (e.g. retained earnings). A bonus issue made out of share premium nets to nil in the total, so do not deduct it.
4Work out the net loan movement. Treat an increase as cash raised and a decrease as cash repaid.
5Work out dividends paid with a retained earnings working: opening + profit after tax − closing. Adjust for any dividend payable.
6Do not include the revaluation reserve movement, because it is non-cash.
7Add the lines to get net cash from financing activities. Show outflows in brackets.
8Sense check: does the sign make sense given the story in the question?

Quickest way: Movement-and-strip method

When to use it: Use it in Section A objective questions where you must give one number in about two minutes.

Write down the change in share capital plus share premium.
Subtract any bonus issue funded from retained earnings or another reserve outside share capital and premium. Do not subtract a bonus issue funded from share premium. This gives cash from shares.
Write down the change in loans with its sign.
Compute dividends as opening retained earnings + profit − closing retained earnings. Make it negative.
Add the three numbers. Check the answer against the options for sign and size.

Common mistakes in Cash Flows from Financing Activities

Counting a bonus issue as cash raised.
Share capital rises, so it looks like a share issue.
Fix: Check the question for a bonus issue and see which reserve pays for it. If it comes from retained earnings or another reserve outside share capital and premium, remove it from the movement. If it comes from share premium, it already nets to nil in the total. No cash is received either way.
Counting only the share capital movement and ignoring share premium.
Students forget that the issue price is split between par value and premium.
Fix: Always add the movement in share capital and share premium together before removing any bonus issue funded from other reserves.
Taking the closing retained earnings movement as dividends paid.
The movement is the net of profit and dividends.
Fix: Use opening + profit after tax − closing. The difference is the dividend.
Including the revaluation reserve increase in financing cash flows.
It is a movement in equity, so it seems to belong.
Fix: A revaluation is a non-cash change in asset value. Leave it out of financing.
Using the dividend declared instead of the dividend paid.
The statement of changes in equity shows the declared amount.
Fix: Adjust for any opening and closing dividend payable. Only the cash actually paid goes in the statement.
Getting the sign wrong on loans or dividends.
Rushing and treating all movements as positive.
Fix: Ask whether cash came in or went out. Inflows are positive, outflows go in brackets.

Worked examples

Example 1

Extracts from a company's statements of financial position: share capital ($1 shares) $400,000 opening and $520,000 closing; share premium $60,000 opening and $90,000 closing; loans $250,000 opening and $180,000 closing. During the year a bonus issue of 1 for 10 was made at par out of share premium (on opening shares). Calculate net cash from financing activities before dividends.

Show the solution

Opening shares were 400,000, so the 1 for 10 bonus issue is 40,000 shares at $1 = $40,000.
Share capital movement = 520,000 − 400,000 = $120,000.
Share premium movement = 90,000 − 60,000 = $30,000.
Total movement = 120,000 + 30,000 = $150,000.
The bonus issue is funded from share premium. It added $40,000 to share capital and reduced share premium by $40,000, so its net effect on the total is nil. Do not subtract it. The total movement of $150,000 is all cash.
Check: shares issued for cash = 120,000 − 40,000 = 80,000 shares at par = $80,000. Premium on those shares = 30,000 + 40,000 = $70,000. Total cash = 80,000 + 70,000 = $150,000, which agrees.
Loans fell by 250,000 − 180,000 = $70,000, which is a repayment.
Net financing = 150,000 − 70,000 = $80,000.

Answer: Net cash from financing activities before dividends is an inflow of $80,000.

Example 2

A company had retained earnings of $310,000 at the start of the year and $355,000 at the end. Profit for the year after tax was $120,000. There was no dividend payable at either date. In the year the company also issued 50,000 $1 shares at $1.60 each and repaid a $40,000 loan. Calculate net cash from financing activities.

Show the solution

Dividends paid = opening retained earnings + profit − closing = 310,000 + 120,000 − 355,000 = $75,000.
Cash from share issue = 50,000 × $1.60 = $80,000.
Loan repaid = $40,000 outflow.
Net financing = 80,000 − 40,000 − 75,000 = −$35,000.

Answer: Net cash used in financing activities is $35,000 (an outflow).

Exam tips

Scan the question for the words bonus issue, revaluation, and converted. These signal non-cash items to remove.
For number entry questions, enter the figure with the correct sign as the question asks, and do not include currency symbols or commas unless told.
In multiple response questions, select only items that involve cash and relate to owners or lenders. Reject revaluation and bonus issue items.
Always check for a dividend payable in the opening and closing statements of financial position before finalising dividends paid.
Do the retained earnings working on paper. Do not try to do it in your head.

Practice questions from Statement of cash flows (excluding partnerships)

Cash Flows from Financing Activities in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Cash Flows from Financing Activities: frequently asked questions

What items go in financing activities in the cash flow statement?

Cash from issuing shares, cash from raising loans, loan repayments and dividends paid to shareholders. These are cash flows with owners and lenders. Non-cash items like bonus issues are excluded.

How do I calculate dividends paid from the statement of financial position?

Use a retained earnings working: opening retained earnings plus profit after tax, minus closing retained earnings. If a dividend is payable at either year end, adjust to find the cash actually paid. Opening payable plus declared minus closing payable gives the cash figure.

Does a bonus issue affect the cash flow statement?

No. A bonus issue moves amounts from reserves such as share premium or retained earnings into share capital. No cash is received. If it is funded from share premium, it nets to nil in the total of share capital plus premium. If it is funded from retained earnings or another reserve outside those two accounts, remove it before calculating cash from shares.

Does a revaluation reserve affect financing cash flows?

No. A revaluation raises the carrying amount of an asset and creates a reserve. It involves no cash, so it never appears in the statement of cash flows.