Study Notes on Statement of Cash Flows
Statement of Cash Flows Overview
The statement of cash flows summarizes and reports cash inflows and outflows for a company over a specified period.
Structure of the Statement
The statement is separated into three distinct sections:
Operating Activities
Includes cash flows from activities related to the core business operations.
Activities involved:
Research and Development (R&D)
Purchase of inventory
Production of goods and services
Distribution of products
Marketing expenses
Investing Activities
Involves transactions for acquiring and disposing of long-term assets.
Typically includes:
Buying and selling assets like land and equipment
Assets held for a duration longer than one year
Financing Activities
Covers cash transactions between the company and its owners and creditors.
Activities involved:
Long-term borrowing from lenders
Repayment of borrowed cash
Cash investments made by the owner
Cash withdrawals by the owner
Calculation of Cash Flows
The final part of the statement provides a summary of net cash flows:
This section calculates the total change in cash during the reporting period.
The change in cash is added to the company's beginning cash balance to determine the ending cash balance.
Presentation of the Statement
The statement of cash flows header includes:
Company name
Title of the statement
Descriptive time period covered by the statement
Interrelationship with the Balance Sheet
The statement of cash flows is connected to the balance sheet:
For example, a cash amount of $4,800 on the balance sheet should match the ending cash amount of $4,800 on the statement of cash flows.
The statement of cash flows is prepared subsequent to the balance sheet.
Cash Flow Equation
The equation representing the statement of cash flows is as follows: