Statement of Cash Flows Format Sample

If you don’t know about Statement of Cash Flows then kindly read “Step in the Accounting Cycle”, so that you can better know about this Statement.

After preparing Balance Sheet or Statement of Comprehensive Financial Position, the number of this Statement comes. This financial Statement helps the company to pay debts and proposed dividend to shareholders. The company businesses need financing, especially external financing to generate resources in future. For the Preparation of this statement, you need to know the basic of Accounting. The efficient presentation of this statement can influence the Users of Financial Statements, especially investors who want to invest the money in company businesses. Below we discuss two methods used for the preparation of this statement.

In order to solve Cash Flow Problems or in order words to better know about how to prepare statement of Cash Flows, there are two methods of its preparation:

ü Direct Method

This method is the best method as the investors get the actual amount of Cash from the Cash Flows From Operating Activities section which is shown on Cash Basis rather than on Accrual Basis.

If you don’t know about the Basis of recording company businesses transactions, then kindly read my article about “Adjustments in Final Accounts with Example”.

ü  Direct Method Components

Cash Flows From Operating Activities

Inflows include Receipts from Customers / Account Receivable / Debtors + Receipts From sales of goods or services, Payment Received + Dividend Received.

Outflows include Payments made to suppliers / Creditors / Account Payable / Employees 

Cash Flows From Investing Activities

Inflows may show Receipts From Fixed Assets / Non-Current Assets and Investments.

In Outflows, we may consider payments made to acquire Fixed Assets / Non-Current Assets and Investments.

Cash Flows From Financing Activities

This section consists of Receipts From Debts and Equity and outflows include payments made to settle down the payments, Dividend paid to shareholders, etc.

Note: Inflows indicate that receipts that come into the Company Businesses and Outflows represent payments that paid by the Company Businesses.

Also Cash Flows From Investing and Financing Activities are the same under Direct and Indirect Method.

ü Indirect Method

Mostly companies businesses adopt this method. In this method, Cash Flows From Operating Activities are shown on Accrual Basis. But From the point view of investors, it is not good method as they want to know actual Cash Flows position of the company businesses.

Indirect Method Components

Cash Flows From Operating Activities

Net Income

Add:  

            Depreciation

            Loss on Sale of Fixed Assets or Investments

            Decrease in Accounts Receivable

            Decrease in Inventories

            Decrease in Prepaid Expenses

            Increase in Accounts Payable

            Increase in Accrued Liabilities

 Less:  Gain on Sale of Fixed Assets or Investments

            Increase in Account Receivable

            Increase in Inventories

            Increase in Prepaid Expenses

            Decrease in Accounts Payable

            Decrease in Accrued Liabilities

           

So it is the brief introduction to Statement of Cash Flows Format Structure. Now hopefully, you have better understanding about both methods of this Financial Statements.