Statement of cash flows

Eduzendium article

The statement of cash flows reports the cash effects of a company's operations for a period of time. The main purpose is to provide financial information about the cash receipts and cash payments of a business for a specific period of time. This helps investors, creditors and other external users about a company’s cash position. The statement shows the cash effects of a company's operating, investing, and financing activities. The statement of cash flows indicates the net increase or decrease in cash during the period as well as the ending cash balance.

It helps to answer some questions such as,

• where did cash come from during the period,
• how was the cash used,
• what was the change in cash balance during the period?

Statement of Cash Flows Outline:

I. Purpose of the statement

II. Cash flow activities

A. Operating activities

Operating activities include cash flow from the sale of a company's product and the collection of payment from customers. Cash flow from operating activities includes cash receipts from sales of products and payments to suppliers and employees. It also includes receipts on the sales of loans, dividends received, tax and interest payments made.

B. Investing activities

Investing activities include cash flow from the sale and purchase of long-term assets. Cash flow from investing activities includes receipts from selling and expenditures for buying plant and equipment. It also includes collections on loans for selling and payments on loans for collecting another company's debt instruments.

C. Financing activities

Financing activities include cash flow from investors and shareholders for issuing shares as well as the cash outflow to shareholders in the form of dividend payments. It also includes the proceeds of issuing short-term or long-term debt and payments for the repurchase of company shares.

III. How to calculate cash flow