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.
Components
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 cash | 21 |
| Cash and Cash Equivalent – Opening balance | 10 |
| Cash and Cash Equivalent – Closing balance | 31 |
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