Cash Flow Statement

Statement of Cash Flows

• Records cash receipts and cash payments

​

Cash Basis

• Records revenue when earned

• Records expenses when incurred

​Accrual Basis

Accrual vs. Cash Basis

Cash Flow Definition

the total amount of money being transferred into and out of a business, especially as affecting liquidity.

Our Destination----->

• Why is this important?

• How do we measure?

• How do we communicate to stakeholders?

Inflows & Outflows

Businesses have income and expenses - what do you think their goal is?

A corporate cash flow statement has three main parts:
1) Cash Flow from Operating Activities
2) Cash Flow from Investing Activities
3) Cash Flow from from Financing Activities.​

The Cash Flow Statement

Operating Activities

• Cash receipts and payments necessary to operate a business on a day-to-day basis.

• Cash Inflow Examples:

  • Cash sales of merchandise

  • Cash Sales of Services

  • Cash received on account

  • Interest Income

• ​Cash Outflow Examples

  • Cash paid for salaries

  • Cash paid for merchandise

  • Cash paid on account

  • Cash paid for supplies

  • Cash paid for utilities

  • Cash paid for interest

Investing Activities

• Cash receipts or payments involving the sale or purchase of assets used to earn revenue over a period of time

• Cash Inflow Examples:

  • Sale of property/building

  • Sale of investments

  • Sale of machinery/equipment

• ​Cash Outflow Examples:

  • Purchase of property/building

  • Cash paid for investment

  • Purchase of machinery/equipment

Financing Activities

• Cash receipts or payments involving debt or equity transactions

• Cash Inflow Examples

  • Issuing stock

  • Long-term loans

  • Issuing bonds
    

• ​Cash Outflow Examples:

  • Payment of cash dividends

  • Repayment of loan principal

  • Retirement of bond principal

Two Methods of Determining Cash Flow

1. Direct Method

2. Indirect Method

Operating Section

1. Start with net income

2. Add back non-cash expenses

   1. depreciation and amortization expense

3. Adjust for changes in current assets

4. Adjust for changes in current liabilities

5. Calculate cash provided by/used in operating activities

• Increase = added to net income

• Decrease = deducted from net income

• Same signs

Changes in Liabilities

• Increase = deducted from net income.

• Decrease = added to net income.

• Opposite signs

Changes in Assets

Changes in Assets & Liabilities: Operating Section

Investing Activities

1. Analyze change in long-term asset accounts.

   1. Equipment, land, building, investments, etc.

2. Increase = cash outflow = negative number

3. Decrease = cash inflow = positive number

4. Calculate cash provided by/used in investing activities

Financing Activities

1. Analyze changes in long-term debt and stockholders' equity accounts

2. Increase in debt = cash inflow = positive number

3. Decrease in debt = cash outflow = negative number

4. Dividends paid = cash outflow = negative number

5. Calculate total cash provided by/used in financing activities

​After 3 Activities

1. Calculate net increase/decrease in cash

2. Add/subtract to beginning cash balance

3. Calculate total ending cash balance

   1. Should match the balance sheet

Simplified Personal Cash Flow Statement

• Cash Flow Statement: A financial statement that shows the inflows and outflows of cash.

• Importance: Provides insights into your liquidity and summarizes operating activities, and investing and financing activities.

• Key Components: Sources of Income and Spending Categories

• Analysis: Helps assess your ability to generate cash and your financial health in particular your liquidity which is how much cash is available for personal uses.