Bond activity should be reported on the cash flow statement from the security's issuance to its eventual settlement date. Which aspect of the statement the activity is recorded in depends on whether the business issued or acquired the bonds. Bond issuers will report the related activity in the financing section of the cash flow statement. Bondholders will report all related cash transactions in the investment section.
Bonds are devices used by businesses to raise capital for expanding their business. When the bonds are sold, the businesses take in cash to fund whatever project it had in mind. The businesses pay interest on the amount due to the holders of the bond before it eventually repays the underlying amount at the end of the term. The businesses can either pay the interest over time or in a lump sum at the end of the term of the bond.
Advertisement Article continues below this adThe cash flow statement shows all of the cash receipts and payments made by a business during the year. The cash flow statement is an important tool for investors, because it allows them to evaluate the business's ability to pay its debts and make distributions to owners. The statement divides cash flows into three categories. Operating cash flow stems show the cash receipts and payments associated with the company's sale of its goods or services. Investing activities show the cash flow tied to acquiring and disposing long-term assets, such as equipment, and investment properties, such as bonds. Financing focuses on the cash generated and paid in the business's attempts to secure and settle debts.