Statement of Cash Flows

Statement of Cash Flows

Shows cash inflows and outflows from operating, investing, and financing activities over a period

Operating Activities (CFO)

Cash flows from day-to-day business operations (e.g., revenue collection, expenses)

Investing Activities

Cash flows from buying or selling long-term assets (e.g., PP&E, investments)

Financing Activities

Cash flows from external financing (e.g., issuing stock, borrowing, repaying debt, paying dividends)

Indirect Method (CFO)

 Starts with net income, adjusts for noncash items and changes in working capital to determine cash from operations.

Noncash Expenses/Losses

Expenses that reduce net income but do not affect cash (e.g., depreciation, amortization).

Noncash Gains/Income

Income that increases net income but does not bring in cash (e.g., unrealized gains on investments).

Working Capital Changes

Changes in current assets/liabilities that affect cash flow (e.g., accounts receivable, accounts payable).

Cash Equivalents

Short-term, highly liquid investments that are easily converted to cash (company-defined).

Restricted Cash

Cash set aside for a specific purpose but included in the reported cash balance.

Debit Balance Accounts

Assets; increases → cash outflow, decreases → cash inflow.

Credit Balance Accounts

Liabilities/equity; increases → cash inflow, decreases → cash outflow.

Cash Inflows

 Cash received by the company from any activity (operations, investing, financing).

Cash Outflows

Cash paid out by the company for any activity (operations, investing, financing).

Net Income vs. Cash Flow

Net income is accrual-based; cash flow adjusts for noncash items and working capital changes.

Purpose of Statement of Cash Flows

Evaluate liquidity, financial flexibility, and long-term sustainability; see “story behind the numbers.