Statement of Cash Flows

The statement of cash flows is where the information of sources and uses of cash
during the period is presented. The questions of the primary users about the following
can be answered on this report:

1. What is the net cash flow from operating activities of the business?
2. What is the net cash flow for investing activities of the business?
3. What is the net cash flow from financing activities of the business?

The statement of cash flows provides three components of how cash of the entity
flows, these are:

1. Operating activities.
2. Investing activities.
3. Financing activities.

Cash flows from operating activities are cash collections and cash payments of the
business, like collection from sale of goods and services, collection of receivables,
payment of purchases, payments of salaries and utilities, payment of interests, and
payments of taxes.

Cash flows from investing activities are cash payments or cash transfers to investing
activities of the business. Cash flows from investing activities include cash outflow for
the acquisition of land, building, machinery, and equipment. Investing into long term
investments in stocks and bonds is also part of the cash transfers for investing
activities.

Cash flows from financing activities are cash collections and cash payments from
the sources of funds of the entity. Cash proceeds from long term bank loans, and cash
investments of owners are financing inflows from financing activities. Cash payments
to bank loans and distributions of cash to the owners as drawings or dividends are
financing outflows from financing activities.

The operating cash flows can be presented using:

1. Direct method; or
2. Indirect method.
 Direct method shows the total cash collections and payments from operating
activities, while indirect method reconciles the amount of profit or loss, into the cash
flows from operating activities. Since profit and loss accounts are related to the normal
business operation of the entity and are accounted using accrual accounting
principles, then the indirect method will show the reconciliation between accrual basis
profit, as shown in the profit and loss statement, and the cash basis profit, as shown in
the operating cash flows.

Below are examples of statement of cash flows.

Cash basis

met balance this year !

balance last year , beg.
ge ending
g
negative Cash balance a financial position
if my increase and receivable ,
cash end
=

decrease and receivable , positive

if my increase and payable positive

,

decrease and payable negative

,