CASH FLOW STATEMENT

[Skipper]

How should a loan from the company to a director be shown in the Cash Flow Statement?

[Andromeda]

In the Cash Flows From Financing Activities, it is a Loan to director or shareholder, as the case may be.

[Skipper]

Thank you for your comment, Andromeda. But I don't think so. Financing activities are normally for sources of finance, i.e. bank overdraft, loan from a financial institution, etc. The loan to the director is recognised on the balance sheet as a current asset as it will probably be repaid within the next 12 months. So if it goes anywhere, I believe it should appear under investments. However, if I do that, it will have to be shown separately on the balance sheet and not as part of cash and cash equivalents?

[Andromeda]

Nope.

Cash Flow from Financing Activities accounts for inflows and outflows of cash resulting from debt issuance and financing, the issuance of any new shares, dividend payments, and any repurchase of existing shares.

Investing activities include the acquisition or purchase of long-term investments, purchase of fixed assets, etc. The proceeds from the sale of non-current assets is also be reported in the investing activities section of the cash flow statement.

Also, why would you want the loan to be shown as part of cash and cash equivalents? At best it is a loan to shareholder, or if he is a director and not a shareholder, then loan to a related party.

[EAB]

Loan to shareholder is definitely not part of Financing Activities. Financing activities are for items that finances the company, this liabilities and equity. Not bank overdraft as this forms part of Cash and cash equivalents.

Loan to shareholder is an asset. Is the loan current or non-current? If it is current it will form part of the changes in working capital. If it is non-current it will form part of investing activities.