Non-Cash Financing Activities and the Importance for Disclosure
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As the name implies, non-cash financing activities involve financial transactions for purchase that do not involve cash. An example of a non-cash financing activity would be if you own a business and need to purchase new furniture and you make that purchase with a company credit card. Other examples of non-cash purchasing would be obtaining a loan or signing a note payable to purchase the new furniture.
This submission will provide real life examples of Non-Cash Financing Activities and the importance and reasons for disclosure in the financial statements.
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Solution Summary
This solution contains in excess of 500 words of examples and reasons for disclosure of non-cash financing activities.
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An example of a non-cash financing transaction would be if you owned a landscaping business and your business is in need of another trailer to be able to transport additional equipment. You go to the local trailer dealership to find the trailer that best works for your business. You decide to purchase this trailer, but instead of writing a check, which is considered a form of cash, you take a loan out to purchase this trailer from the dealership. This transaction is considered a non-cash financing activity.
Now we discuss disclosure, or reporting, of a non-cash financing transaction.
Disclosure is needed in non-cash financing activities because as you can see, transactions, even those transactions not involving cash are important to a business and to the users of financial statements. Disclosing of non-cash financing activities is a requirement under GAAP, General Accepted Accounting Principles. The ...
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