STATEMENT OF CASH FLOWS

FINANCIAL ACCOUNTING PRESENTATION BY:

MEHAK FATIMA
ANAM IQBAL
SAMREEN SIRAJ
TRUPTHI
STATEMENT OF CASH
FLOWS 
 The Statement of Cash Flows (also referred to as the cash flow statement) is one of the three key financial
statements that report the cash generated and spent during a specific period of time (e.g., a month, quarter,
or year) that allows investors to understand how a company’s operations are running, where its money
is coming from, and how money is being spent. The statement of cash flows acts as a bridge between the
income statement and balance sheet by showing how money moved in and out of the business.
  The CFS is important since it helps investors determine whether a company is on solid financial footing.
Creditors, on the other hand, can use the CFS to determine how much cash is available (referred to
as liquidity) for the company to fund its operating expenses and pay down its debts.

 Important Definitions
 Cash Flow: Inflows and outflows of cash and cash equivalents (learn more in CFI’s Ultimate Cash Flow Guide)
 Cash Balance: Cash on hand and demand deposits (cash balance on the balance sheet)
 Cash Equivalents: Cash equivalents include cash held as bank deposits, short-term investments, and any
very easily cash-convertible assets – includes overdrafts and cash equivalents with short-term maturities
(less than three months).
THREE SECTIONS OF THE STATEMENT OF CASH
FLOWS:

ü Operating Activities: The principal revenue-generating

activities of an organization and other activities that are not
investing or financing; any cash flows from current assets
and current liabilities.
ü Investing Activities: Any cash flows from the acquisition and
disposal of long-term assets and other investments not
included in cash equivalents
ü Financing Activities: Any cash flows that result in changes in
the size and composition of the contributed equity capital or
borrowings of the entity (i.e., bonds, stock, dividends)
 PREPARING A STATEMENT OF CASH
FLOWS
Direct Method vs Indirect Method of Presentation:
There are two methods of producing a statement of cash flows, the
direct method, and the indirect method.
 In the direct method, all individual instances of cash that are
received or paid out are tallied up and the total is the resulting cash
flow.
 In the indirect method, the accounting line items such as net
income, depreciation, etc. are used to arrive at cash flow.  In
financial modeling, the cash flow statement is always produced via
the indirect method.

Information required to prepare the Cash Flow Statement:

acct.220 8
 Comparative balance sheet
 Current income statement
 Additional information
 STEP #1

Determine the NET CHANGE in CASH

STEPS Increase?

REQUIRED IN Decrease?

PREPARING STEP #2

STATEMENT Determine the NET CHANGE PROVIDED by Operating Activities

OF You must analyze the Income Statement and some of the Balance Sheet net changes (current assets and
liabilities) to convert Net Income (accrual) to a cash basis.  (You might need additional information also).

CASH FLOWS STEP #3

Determine the NET CHANGE PROVIDED by Investing and Financing Activities

You must analyze the some of the Balance Sheet net changes (long term assets and long term liabilities and
equity) to see their effects on cash.
 SAMPLE PROBLEM FOR DETERMINING
STATEMENT OF CASH FLOW

• The transactions of Joe’s Repair Company for the year ended 2000 are used to
illustrate the preparation of a statement of cash flows .
• Joe’s Repair Company started in January 1, 2000, when it issued 50,000 shares
of $1 par value common stock for $50,000 cash.
• The company rented its office space and furniture and performed consulting
services throughout the first year.
SOLUTION:                                   Joe’s Repair COMPANY
Statement of Cash Flows--Indirect Method (Partial)
For the Year Ended December 31, 2020

Cash flows from operating activities

Net income $35,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in accounts receivable $(30,000)
Increase in accounts payable 4,000 (26,000)
Net cash provided by operating activities $ 9,000
Cash flows from investing activities
Purchase of equipment (10,000)
Cash flows from financing activities
Issuance of Common Stock $50,000
Payment of cash dividends (15,000)
Net cash provided by financing activities 35,000
Net increase in cash $34,000
 MANAGING CASH FLOWS
Why is it important?
Good cash flow management will ensure you always have money available for paying your expenses when they are due. Even profitable
businesses can fail if cash flow is not managed properly. If you don't have enough money available to pay your lenders or suppliers, banks may
foreclose and suppliers could cut supplies.

What are some ways to do it?

• Stay on top of bookkeeping: It’s the single best way to understand all the financial transactions in your business, and you can’t do the rest of the steps without it.
• Generate cash flow statements: If you have an accountant, they can do this for you. Otherwise, you can use software—or calculate it yourself using
spreadsheets.

• Analyze your cash flow: Take the info from your cash flow statements, and use it to understand how money is moving through your business.
• Figure out whether you need to increase cash flow: If you are relying on your credit card or line of credit to make ends meet, you need to free up more cash
flow.

• Cut spending where you need to: Overspending cash can result either from covering unnecessary expenses, or paying for expenses at unstrategic times. Cut
overspending to increase cash flow.

• Speed up your accounts receivable: Whether you’re waiting on invoice payments from clients, or deposits from payment processors, the faster you get money
in your pocket, the more cash flow you’ll have.

• Rinse and repeat: Make analyzing your statements a regular part of your back office routine. The more you do it, the better you’ll get at spotting opportunities to
increase cash flow—and nip shortages in the bud.
 STRATEGIES FOR IMPROVEMENT IN CASH FLOW
Some major ways to improve your cash flow:
1. Budgeting:
Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows
you to determine in advance whether you will have enough money to do the things you need to do or would like to do.
2. Improve Your Inventory
Take an inventory check. Make a list of those goods you buy that aren't moving at the same pace as your other products. They tie up a lot
of cash and could hurt your cash flow. Instead of buying more of what doesn’t sell, get rid of it—even if you need to sell it at a discount.

3. Use Electronic Payments

You can use a business credit card as some offer a grace period as long as 21 days, which can do a lot to increase your cash flow. You might
even get cash back. But don't pile up too much debt.

4. Increase Pricing
Increase price on your product / service
WORKSHEET FOR PREPARING A
STATEMENT OF CASH FLOW

• A worksheet for statement of cash flows consists of two sections – a balance sheet effects section and
a cash effects section. Balance sheet effects section is used to analyze the changes in account balances
and cash effects section is used to collect information to be disclosed in the statement of cash
flows. Before further explanation of these two sections, view the skeleton format of the worksheet
given below:
THANK YOU!