Statement of Cash Flows

It is also called cash flow statement and is one of the main financial statements. Unlike income statement, it is made on the cash basis. It is compulsory for an entity to prepare its cash flow statement along with other financial statements such as income statement and balance sheet on periodic basis. Without this statement, financial reports are of no use. This statement performs a key role in assessing the overall liquidity and solvency of the entity. 


This statement is prepared by showing cash flow movements under three separate categories as follows:

Cash flow from operating activities

This section shows the cash generation ability of the entity from its main operations such as sale of goods or rendering of services. In order to calculate this section, accountant can use two different methods which are:

  • Direct method
  • Indirect method

Cash flow from investing activities

This section shows the movement of cash flows resulting from the investment in capital, acquisition of fixed assets and sale of fixed assets.

Cash flow from financing activities

This section reports cash flows from repayment of debt, sale of shares, and payment of dividends etc.

Specimen Format and Example – Using Indirect Method

ABC Company

Staement of Cash Flows

For the Year Ended 30th June, 2015

 $ millions
Cash flow from operating activities 
     Earning before interest and taxes (EBIT)13
       Add: Adustyements to get net cash generated from operating activities 
               Depreciation on fixed asets 2
               Amortization expense 3
       (Increase) / decrease in current assets 
               Accounts receivable (3)
               Stock/ Inventory  (2)
               Prepaid expenses  4
       Increase / (decrease) in current liabilities 
               Accounts Payables 3
               Accued Expenses  4
               Unearned revenue (2)
              Net cash provided by operating activities 22
Cash flow from investing activities  
     Paid for the purchase of machinery (8)
     Sale proceed from sale of computers  4
              Net cash used in investing activities (4)
Cash flow from financing activities  
     Received loan from directors  5
     Paid installment of long term bank loan  (2)
              Net cash provided/ (used) in financing activities 3
                            Net increase (decrease) in cash21
Cash and Cash Equivalent – Opening balance  10
Cash and Cash Equivalent – Closing balance  31

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