Statement of Cash Flows The Statement of Cash flows Provides managers and external readers of the financial statements With information to determine What has caused cash to increase or decrease
What caused cash to increase or decrease? Cash is important to any healthy business and demonstrates an ability for the company to meet obligations, expand, and invest There are three sections to the Statement of Cash Flows (SCF) The operating section (cash from or used by the company’s business) The investing section (cash from or used by the company’s investments in long-term assets or investments in long-term equity or debt [stocks and bonds] of other companies) The financing section (cash from or used by borrowing or from issuing of shares) If a company is generating cash from operations, it is more desirable than if it is generating the lion’s share of its cash from selling off investments, borrowing from banks or issuing shares of its stock. Although selling property, plant and equipment, borrowing, or issuing stock are great ways to raise cash for expansion, the company must be able to meet its day-to-day obligations from its operations.
Information from the Income Statement and Comparative Balance Sheet Are Used to Prepare the SCF as well as other GL information provided Operating Section – Uses information from the income statement and current asset and liability section of the balance sheet Investing Section – Uses information from the long-term asset section of the balance sheet Property Plant and Equipment Long-Term Investments in debt and equity instruments of other companies Financing Section – Uses information from the long-term liabilities and equity section of the balance sheet Bank Loans Issuing shares of the company’s stock Payment of dividends
The Statement of Cash Flows
An Example. Both the Income Statement and a Comparative Balance Sheet are needed to prepare the SCF
The Operating Section – Indirect Method
Operating Section and the Income Statement
Operating Section and the Income Statement
Operating Section and the Income Statement
Operating Section and the Income Statement
Operating Section and the Balance Sheet
Operating Section and the Balance Sheet
Operating Section and the Balance Sheet
Operating Section and the Balance Sheet
Operating Section and the Balance Sheet
Operating Section and the Balance Sheet
Investing Section and Long-Term Asset Section of Balance Sheet
Investing Section and Long-Term Asset Section of Balance Sheet
Investing Section and Long-Term Asset Section of Balance Sheet
Investing Section and Long-Term Asset Section of Balance Sheet
Financing Section and the Balance Sheet
Financing Section and the Balance Sheet
Financing Section and the Balance Sheet
Financing Section and the Balance Sheet
Financing Section and the Balance Sheet
Statement of Cash Flows
Statement of Cash Flows
Statement of Cash Flows
QS 16-19 Indirect: Preparation of statement of cash flows