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Cash flow statement

Checked for updates, April 2022.

What is a Statement of Cash Flows?

A Statement of Cash Flows (or Cash Flow Statement) shows the movement in the Cash account of a company. Accountants follow the accrual basis in measuring income and expenses. However, many users are also interested in how much cash came in and went out of the company; hence the need to present a Statement of Cash Flows.

Statement of Cash Flows Example

Here is a sample cash flow statement for Carter Printing Services, a service type sole proprietorship business.

All amounts are assumed and simplified for illustration purposes.

Carter Printing Services
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash Flow from Operating Activities:    
  Cash received from customers $ 146,000  
  Cash paid for expenses (81,000)  
  Cash paid to suppliers (47,500) $ 17,500
Cash Flow from Investing Activities:    
  Cash paid to acquire additional equipment   (20,300)
Cash Flow from Financing Activities:    
  Cash received from investment of owner $ 10,000  
  Cash received from bank loan proceeds 50,000  
  Cash paid to bank for partial loan repayment (27,000)  
  Cash paid to owner for withdrawal (20,000) 13,000
Net Increase (Decrease) in Cash for the Year   $ 10,200
Add: Cash – January 1, 2021 10,800
Cash – December 31, 2021 $ 21,000

Explanation and Pointers

  1. Statement of Cash Flows presents the inflows and outflows of cash in the different activities of the business, the net increase or decrease in cash, and the resulting cash balance at the end of the period. Cash inflows refer to receipts of cash while cash outflows to payments or disbursements.
  2. A typical cash flow statement starts with a heading which consists of three lines. The first line presents the name of the company; the second describes the title of the report; and the third states the period covered in the report.
  3. Notice that the third line is worded "For the Year Ended..." This means that the information included in the report covers a span of time. In the illustration above, the report presents inflows and outflows of cash for 1 year, i.e. from January 1 to December 31, 2021.
  4. Cash inflows and outflows are classified in three activities: operating, investing, and financing.
  5. Operating activities refer to the main operations of the company such as rendering of professional services, acquisition of inventories and supplies, selling of inventories for merchandising and manufacturing concerns, collection of accounts, payment of accounts to suppliers, and others. Generally, operating activities refer to those that involve current assets and current liabilities.
  6. Investing activities may be summed up as: "where the company puts its money for long-term purposes", such as acquisition of property, plant and equipment; and investment in long-term securities. Selling these properties are also considered investing activities. In general, investing activities include transactions that involve non-current assets.
  7. Financing activities refer to: "where the company gets its funds", such as investment of the owner/s, and cash proceeds from bank loan and other long-term payables. The payment of such items (i.e. withdrawal of owner/s and payment of loans) are also financing activities. Generally, financing activities include those that affect non-current liabilities and capital.
  8. All inflows are presented in positive figures while all outflows in negative (in parentheses).
  9. After inflows and outflows are presented, the net increase or decrease in cash is computed. Then it is added to the beginning balance of cash to get the balance at the end. Easy, right? In simple sense, this report presents the cash balance at the beginning of the period, the changes during the period, and the resulting balance at the end of the period.
  10. Notice that the cash balance at the end, $ 21,000, is the same as the cash balance presented in the company's Balance Sheet.
  11. Good accounting form suggests that a single line is drawn every time an amount is computed. It signifies that a mathematical operation has been completed. The computed balance at the end of the report is double-ruled.
Key Takeaways

It presents cash inflows (receipts) and outflows (payments) in the three activities of business: operating, investing, and financing.

Operating activities pertain to the main operations of the business, such as purchasing and selling.

Investing activities involve acquisition of assets for long-term purposes, and the returns from them.

Financing activities pertain to sources of funding, and includes the receipt of the funds and the repayment thereof.

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