Cash Flow Statement

Cash Flow Statement is a financial report to provide relevant information about the cash receipts and disbursements the company has in particular accounting period. Information from cash flow is important to know the liquidity, financial flexibility and overall performance of the company. This statement is used to complement other financial report. Since, there is often an analysis on Balance Sheet and  Income Statement does not indicate the actual condition of the company’s performance. By seeing this statement, any companies can measure the ability to generate cash and cash equivalents from their operational activities. And it should indicate that the company has enough resources and the ability to survive.

There are three categories that you usually find in this type of report:

1. Operating Activities

The amount of cash flows generated from operating activities is a key indicator to determine whether the operations of the entity can generate sufficient cash flows to repay the loan, maintain the operating ability of the entity, pay dividends, and make new investments without relying on external sources of funding.

Operating activities are principal revenue-producing activities and other activities that are not investment and financing activities. Cash flows from operating activities are primarily derived from the principal income generating activities of the entity. Therefore, the cash flows generally come from transactions and other events that affect the determination of net profit or loss.

Some examples of cash flows from operating activities are (in cash) :

  • receipts from the sale of goods and services, royalties, fees, commissions, and other income;
  • payments to and for the benefit of employees
  • receipts and payments by an insurer in respect of premiums, claims, annuities and other policy benefits;

Some transactions such as the sale of factory equipment may result in a gain or loss recognized in the income statement. The cash flows associated with such transactions represent the cash flows of the investment activity. However, cash payments for manufacturing or acquiring assets held for lease to other parties and subsequently held for sale are cash flows from operating activities. Cash received from the lease and sale of assets after the lease and sale period of the asset after the lease period is recognized as cash flows from operating activities.

2. Investment Activities

It is the acquisition and disposal of long-term assets and other investments that do not include cash equivalents. The separate disclosure of cash flows arising from investment activity needs to be done because the cash flow reflects the expenditure incurred for resources intended to generate future earnings and cash flows. Including obtaining loans or lending, buying or disposing of investments and property, factories, and equipment.

Some examples of cash flows from investing activities are (in cash) :

  • payments to purchase fixed assets, intangible assets and other long-term assets
  • receipts from the sale of land, buildings, and equipment, as well as intangible assets and other long-term assets;
  • advances and loans granted to other parties (other than advances and loans granted by financial institutions)
  • receipts from the repayment of advances and loans made to other parties that provided to other parties (other than advances and loans granted by financial institutions);
  • payments in connection with futures, forward, option and swap contracts except when the contracts are held for trading purposes or contracted, or when payments are classified as financing activities; and

3. Financial Activities

Financial activities or funding are activities that result in changes in the amount and composition of the contributed capital and borrowings of the entity. The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of capital entities. Examples of cash flows arising from financing activities are (in cash) :

  • receipts from the issuance of shares or other equity instruments, the issuance of bonds, loans, notes, mortgages, and short-term borrowings and other long-term.
  • payments to owners to withdraw or redeem shares of the entity;

Cash Flow Statement Template

There are two methods of preparing the Statement of Cash Flows, direct and indirect method. You will samples on how those two methods applied in these templates.

Direct Method

Direct method is a re-examination of each post (or accounts) statements of income in order to report how much cash received or issued in connection with the post. This method generate more useful information in estimating future cash flows that can not be produced by the indirect method.

Cash Flow Statement - Direct Method

The main advantage of the direct method is consistent in showing a report of cash receipts and disbursements for the purpose of a cash flow statement. In addition, the direct method is easier to understand and provide more information in decision-making. The disadvantage of this method is the required data is often quite difficult to obtain.

Similar to previous accounting templates, such as balance sheet statement template, you can start using this template by assigning category names in Chart of Accounts worksheet. Since it is released as individual template, Chart of Accounts assignment is optional. You can skip it and type category names in Cash Flow Statement format worksheet directly. Then you can start typing values for respective categories. All categories and their values will be shown in Cash Flow Report worksheet automatically. And there is one worksheet where you can create your own report with your own format.

  Cash Flow Report Template - Direct Method V11 (699.7 KiB, 223 hits)

Indirect Method

The indirect method uses accrual accounting information to present the cash flows from the operations section of the cash flow statement.

Cash Flow Statement - Indirect Method

Adjustment is in three things:

  • Income and expenses not involving cash inflows and outflows.
  • Gains and losses for investment or investment activity financing.
  • Adjustments for changes in current assets and liabilities that identifies the source of non-cash income and expenses.

Indirect method is more focus on the difference between net income and net cash flow from operating activities. That is its main advantage. And it provides a useful bond between net income and income statement and balance sheet.

You can follow similar steps as described briefly in Direct Method part on using this template.

  Cash Flow Report Template - Indirect Method V11 (699.7 KiB, 190 hits)

Both Direct and Indirect Method Statement of Cash Flows are parts of integrated accounting system spreadsheet. In that spreadsheet you can see values adjusted automatically based on recorded financial transaction data from accounting journal worksheets.

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