Final answer:
A company borrowing $125,000 in cash from a bank represents a financing activity, which is a part of financial accounting associated with transactions to fund the company. This impacts the balance sheet through an increase in liabilities (the loan) and assets (the cash).
Step-by-step explanation:
When a company borrows $125,000 from Northern Bank and receives the loan proceeds in cash, this transaction represents a financing activity. In financial accounting, financing activities involve transactions designed to fund the company, including obtaining cash through borrowing or repaying the amounts borrowed. The impact of this transaction is reflected in the company's balance sheet, where the borrowed amount would appear as a liability, and cash, an asset, would increase by the same amount.
The referenced case of Singleton Bank lending $9 million to Hank's Auto Supply is a similar example, illustrating how a loan is treated as an asset for the bank, expected to generate interest income. It is important for a firm to understand its options for accessing financial capital, which can include taking out loans, issuing bonds, or selling stock. Each method carries its own implications and consequences, such as scheduled interest payments for loans and bonds or selling company ownership in the case of stock issuance.