Statement Cash Flows - BC Bookkeeping Tutorials|dwmbeancounter.com

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Statement Cash Flows

Financial Statements
Statement Of Cash Flow - continued

What is the Cash Flow Statement?
A Cash Flow Statement (also called the Statement of Cash Flows) shows how much cash is generated and used during a given time period. It is one of the main financial statements. The main categories found in a cash flow statement are (1) operating activities, (2) investing activities, and (3) financing activities of a company and are organized respectively. The total cash provided from or used by each of the three activities is summed to arrive at the total change in cash for the period, which is then added to the beginning cash balance to arrive at the cash flow statement’s cash balance as of the end of the period.

Main Categories
Cash Flow Statement
Operating Activities
Total Changes In Cash
Investing Activities
Financing Actvities
Cash Flow from Operating Activities
Cash flow from operating activities refers specifically to money moving in and out of your company as a result of your normal business activities. It shows how much money is flowing in as cash collected from sales and how much is flowing out as payments suppliers and others.

Cash Flow from Investing Activities
When your business experiences changes in its assets, equipment, or investments, these appear in the investing activity section of your cash flow statement.

Cash Flow from Financing Activities
When your business experiences changes in its debts, loans, or dividends, these appear in the financing activity section of your cash flow statement.

In the prior lesson we saw an example of a statement prepared using the Indirect Method. The other method is the Direct Method.

Let's first review a statement prepared using the Indirect Method and then discuss the Direct Method.

Indirect Method
XYZ Corporation  
Cash Flow Statement  
For the Period Ending December 31,xxxx  
Operating Cash Flows
Income from Operationsxxxxxx
Add:

Depreciation & Amortizationsxxxxxx
Accounts Payable Adjustmentxxxxxx
Accounts Receivable Adjustmentxxxxxx
Inventory Adjustmentxxxxxx



Total Operating Cash Flows

xxxxxxx



Investing Cash Flows
Purchase of Propertyxxxxxx
Purchase of Equipmentxxxxxx



Total Investing Cash Flows
xxxxxxx



Financing Cash Flows
Debt Payments
xxxxxx
Dividend Paymentsxxxxxx
Stock Issuedxxxxxx
Loans Acquiredxxxxxx



Total Financing Cash Flows
xxxxxxx



Increase/Decrease Cash
xxxxxxx



Beginng Cash Balance
xxxxxxx



Increase/Decrease In Cashxxxxxxx



Ending Cash Balance
xxxxxxx







The reason for the difference between cash and profit is because the income statement is prepared under the accrual basis of accounting, which matches revenues and expenses when incurred, even though revenues may actually not have yet been collected and expenses may not have yet been paid. In contrast, the cash flow statement only recognizes cash that has actually been received or disbursed which explains why the net income figure is adjusted.
Direct Method

The cash flow statement direct method presents a detailed breakdown of the operating expenses and income.  The direct method lists details regarding the cash amounts a company has earned and paid out. A few examples you may see presented in the operating section of the cash flow statement include:
  • Wages & Salaries
  • Cash received from customers
  • Cash paid to suppliers
  • Interest paid
  • Income tax paid

In contrast, the indirect method doesn't include a breakdown of individual operating activities. With this method, as discussed earlier you present the net income on the first line and then adjust this figure by listing increases and decreases in asset and liability accounts. So, using the direct method only changes the way you report on the operating activities category. The other two activities, investing activities and financing activities are prepared by analyzing the balance sheet regardless of the method you use.

The major accounting standards organization board in the U.S. —the Financial Accounting Standards Board—prefers the direct method as does the the International Financial Reporting Standards.

Example of a Cash Flow Statement using the Direct Method
XYZ Corporation  
Cash Flow Statement  
For the Period Ending December 31,xxxx  
Operating Cash Flows
Cash receipts from customersxxxxxx
Cash payments to suppliersxxxxxx
Salaries & Wages paidxxxxxx
Interest paidxxxxxx
Taxes paidxxxxxx



Total Operating Cash Flows

xxxxxxx



Investing Cash Flows
Purchase of Propertyxxxxxx
Purchase of Equipmentxxxxxx



Total Investing Cash Flows
xxxxxxx



Financing Cash Flows
Debt Payments
xxxxxx
Dividend Paymentsxxxxxx
Stock Issuedxxxxxx
Loans Acquiredxxxxxx



Total Financing Cash Flows
xxxxxxx



Increase/Decrease Cash
xxxxxxx



Beginng Cash Balance
xxxxxxx



Increase/Decrease In Cashxxxxxxx



Ending Cash Balance
xxxxxxx




Additional facts and information about the business is disclosed in the
Notes to the Financial Statements
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