What is the Statement of Cash Flows?The statement of cash flows is one of the financial statements issued by a business, and describes the cash flows into and out of the organization. Its particular focus is on the types of activities that create and use cash, which are operations, investments, and financing. A smaller organization may not release a statement of cash flows for internal use, preferring to only issue an income statement and balance sheet. However, it is a required part of the audited financial statements that are released to lenders, creditors, regulators, and investors. Show
How to Use the Statement of Cash FlowsThe statement of cash flows can be used to discern trends in business performance that are not readily apparent in the rest of the financial statements. It is especially useful when there is a divergence between the amount of profits reported and the amount of net cash flow generated by operations. Many investors feel that the statement of cash flows is the most transparent of the financial statements (i.e., most difficult to fudge), and so they tend to rely upon it more than the other financial statements to discern the true performance of a business. They can use it to determine the sources and uses of cash. There can be significant differences between the results shown in the income statement and the cash flows in this statement, for the following reasons:
Components of the Statement of Cash FlowsCash flows in the statement are divided into the following three areas:
The Direct MethodThere are two ways in which to present the statement of cash flows, which are the direct method and the indirect method. The direct method requires an organization to present cash flow information that is directly associated with the items triggering cash flows, such as:
The Indirect MethodFew organization collect information as required for the direct method, so they instead use the indirect method. Under the indirect approach, the statement begins with the net income or loss reported on the company's income statement, and then makes a series of adjustments to this figure to arrive at the amount of net cash provided by operating activities. These adjustments typically include the following:
Terms Similar to the Statement of Cash FlowsThe statement of cash flows is also known as the cash flow statement. Reporting Requirements for Annual Financial Reports of State Agencies and Universities General Accounting Use the following four categories of activities to classify cash transactions:
Generally, cash receipts and cash payments are reported as gross rather than net. Two exceptions to the gross reporting are:
Which are the 3 main activities of a cash flow statement?A typical cash flow statement comprises three sections: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.
What are the 3 categories Activities of cash flow define each?Operating activities include cash activities related to net income. Investing activities include cash activities related to noncurrent assets. Financing activities include cash activities related to noncurrent liabilities and owners' equity.
|