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 Operations | xxxxxx | ||
| Add: | |||
| Depreciation & Amortizations | xxxxxx | ||
| Accounts Payable Adjustment | xxxxxx | ||
| Accounts Receivable Adjustment | xxxxxx | ||
| Inventory Adjustment | xxxxxx | ||
Total Operating Cash Flows | xxxxxxx | ||
| Investing Cash Flows | |||
| Purchase of Property | xxxxxx | ||
| Purchase of Equipment | xxxxxx | ||
| Total Investing Cash Flows | xxxxxxx | ||
| Financing Cash Flows | |||
Debt Payments | xxxxxx | ||
| Dividend Payments | xxxxxx | ||
| Stock Issued | xxxxxx | ||
| Loans Acquired | xxxxxx | ||
| Total Financing Cash Flows | xxxxxxx | ||
| Increase/Decrease Cash | xxxxxxx | ||
| Beginng Cash Balance | xxxxxxx | ||
| Increase/Decrease In Cash | xxxxxxx | ||
| 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 customers | xxxxxx | ||
| Cash payments to suppliers | xxxxxx | ||
| Salaries & Wages paid | xxxxxx | ||
| Interest paid | xxxxxx | ||
| Taxes paid | xxxxxx | ||
Total Operating Cash Flows | xxxxxxx | ||
| Investing Cash Flows | |||
| Purchase of Property | xxxxxx | ||
| Purchase of Equipment | xxxxxx | ||
| Total Investing Cash Flows | xxxxxxx | ||
| Financing Cash Flows | |||
Debt Payments | xxxxxx | ||
| Dividend Payments | xxxxxx | ||
| Stock Issued | xxxxxx | ||
| Loans Acquired | xxxxxx | ||
| Total Financing Cash Flows | xxxxxxx | ||
| Increase/Decrease Cash | xxxxxxx | ||
| Beginng Cash Balance | xxxxxxx | ||
| Increase/Decrease In Cash | xxxxxxx | ||
| Ending Cash Balance | xxxxxxx | ||
Additional facts and information about the business is disclosed in the
Notes to the Financial Statements
