Statement of cash flows
A cash flow statement is a financial report that shows incoming and outgoing money during a particular period (often monthly or quarterly). It does not include non-cash items such as depreciation. This makes it useful for determining the short-term viability of a company, particularly its ability to pay bills.
People and groups interested in cash flow statements include:
- Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses
- Potential lenders/creditors, who want a clear picture of a company's ability to repay
- Potential investors who need to judge whether the company is financially sound
- Potential employees or contractors who need to know whether the company will be able to afford compensation
Cash flow statements are particularly important for start-up companies with limited liquid assets. These companies are vulnerable to devastating cash shortages, even when Accounts Receivable balances point to long-term financial health.
Statement of Cash Flows
(A) Cash Flow Info & Decision Making: ?Cash is King?
(B) Statement of Cash Flows
Statement of Cash Flow for the period 1/1/xx to 1/1/xx+1
Cash flow from operations (CFO) +/- x x
Cash flow from investing (CFI) +/- y y
Cash flow from financing (CFF) +/- z z
Equals change in cash account = change of cash balance
+ Beginning of period cash + Beginning cash
= Ending cash balance = Ending cash
(C) Analyzing Cash Flows from Operations
1. non-cash items
2. depreciation
3. deferred tax
4. interest amortization
5. accrual items, such as wages payable
(D) Methods for preparing SCFs
1. Direct Method
2. Indirect Method
