What is the purpose of the statement of cash flows?

Provide at least one example of how a cash flow statement

could be used for your personal or household budget.

Cash flow statement is used to identify cash flows during same period as a company’s income
statement between related balance sheets. Cash flow statement include cash amounts being
reported as operating, investing, and financing activities. The cash flow statement is required to
disclose information including the amount of interest paid, amount of income taxes paid, and any
significant investing and financing activities which require the use of cash. [ CITATION Wha141 \l
1033 ]

Cash flow statement is further classified into operating activities, investing activities, and
financing activities and the net change from these three classifications reports the reasons for
change in company’s cash between two financial periods.
Cash from operating activities usually refers Cash from operating activities focuses on the cash
inflows and outflows from a company's main business activities of buying and selling products
and providing services. There are two ways of reporting operating cash flow, indirect method
begins with the company's net income based on the accrual method. That amount is then
converted to the cash from operating activities by adding back depreciation expense and
adjusting for the changes in accounts receivable, inventory, accounts payable, and most other
current assets and current liabilities. The direct method reports cash from operating activities
collected from customers, the payments to suppliers, the payments for operating expenses,
payments for interest expense, and payments for income taxes. [ CITATION Wha16 \l 1033 ]
Investing activities often refers to the cash flows from investing activities, which is one of the
three main sections of the statement of cash flows. In this report the company lists its cash
inflows and cash outflows resulting from the disposal or acquisition of the company's long-term
assets. [ CITATION Wha17 \l 1033 ]
Financing activities often refers to the cash inflows and cash outflows from borrowing and
repaying short-term loans, borrowing and repaying long-term loans and other long-term
liabilities, issuing or reacquiring its own shares of common and preferred stock and paying cash
dividends on its capital stock. [ CITATION Wha14 \l 1033 ]
References
What are some examples of financing activities? (2014). Retrieved from accountingcoach:
https://www.accountingcoach.com/blog/financing-activities-cash-flow-statement-2
What are some examples of investing activities? (2017). Retrieved from accountingcoach:
https://www.accountingcoach.com/blog/investing-activities-cash-flow-statement
What is cash from operating activities? (2016). Retrieved from accountingcoach:
https://www.accountingcoach.com/blog/cash-from-operating-activities
What is the purpose of the cash flow statement? (2014). Retrieved from accountingcoach:
https://www.accountingcoach.com/blog/purpose-of-cash-flow-statement

Hi Monty,
Thanks for the post, as you said cash flow statements provides insight into personal financial
management. Cash flow statement in conjunction with net worth statement to get a better idea of
overall financial health. Cash flow statement won’t provide the overall financial health, but it can
tell one is on the right path, as wealth cannot be built if a person is running on deficit.
Creating a cash flow statement may remind of creating a budget, and needs record of all sources
of income and all your expenses. This is about more than just recognizing monthly income and
how much is being paid. Tracking expenses should know where money is going, and when it
needs to get there and regular bills are due. Calculating net cash flow and adjusting budget,
income and expenses and you have a personal cash flow statement. If your cash flow statement is
positive, then you have some additional cash each month that you can use to help you reach your
financial goals. Once you understand how your money is moving through your personal finances,
you can begin to make changes to the way things are done. For example, you may find that most
of your income is irregular. This is common when first starting a career in freelancing, starting a
small business, and in certain types of jobs.