Cash Flow Statement Definition

cash flow statement definition

Cash Flow Statement Definition and Format

Cash Flow Statement Definition – A statement showing where the company’s cash comes from and where it goes.

In simple words, this financial statement shows the cash inflows and outflows of a company. It is a complementary statement to Balance Sheet and Income statement. It discuss in detail where the cash is coming in the firm and where it is going or is used.

As the name suggests, this statement does not record any credit base transactions unlike other financial statements. This statements only records the cash transactions.

Elements of Cash Flow Statement

There are three elements namely – Operating Activities, Investing Activities and Financing Activities.

Operating activities – The cash inflows and outflows arises while performing operation related activities. In simple words, increase or decrease in cash due to day to day activities. Example – cash proceeds from sale of goods and service, cash payments to suppliers, etc.

Investing Activities – It includes the acquisition or sale of long term assets or investments. For example – cash inflow from sale of fixed assets, cash payment for acquiring fixed assets, etc.

Financing Activities – These are the activities that results in the change in size and composition of the owner’s equity or capital. It also includes the borrowings of the enterprise. For example – cash proceeds from issuing shares or bonds, etc.

Format of Cash Flow Statement

Cash flow statement for the year ending 2016

Cash flows from operating activities

Net profit before taxation and extraordinary items
Adjustments for :
Add: Depreciation
Add: Foreign exchange loss
Less: Interest income
Less: Dividend income
Add: Interest expense
Operating profit before working capital changes ………………………………………………………………
Less: Increase in sundry debtors
Add: Decrease in inventories
Less: Decrease in sundry creditor
Cash generated from operation……………………………………………………………………………………………
Less: Income taxes paid
Cash flow before extraordinary item
Proceeds from earthquake disaster settlement

Net cash from operating activities………………………………………………………………………………………..

Cash flows from investing activities
Purchase of fixed assets
Proceeds from sale of equipment
Interest received
Dividends received

Net cash from investing activities………………………………………………………………………………………..

 

Cash flows from financing activities
Proceeds from issuance of share capital
Proceeds from long-term borrowings
Repayment of long-term borrowings
Interest paid
Dividend paid

Net cash used in financing activities ………………………………………………………………………………………
Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

Related Financial Terms of Cash Flow Statement

Importance of Cash Flow Statement in Business

  • This financial statement is used to predict the future cash flow of the enterprise.
  • It plays an important role in making budget related decisions.
  • The statement reflects the financial condition of the firm. Higher inflows are better for the company.
  • It also reflects how company is generating cash and from which activities the cash generation is the highest.
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