1. Lesson L060089: Developing a Statement of Cash Flows
Agribusiness Library
Lesson L060089: Developing a Statement of Cash Flows

2. Objectives
1. Describe the basic functions of a statement of cash flows, and determine why a statement of cash flows is necessary.
2. Identify the major categories of a statement of cash flows.
3. Develop a statement of cash flows for an agricultural business.

3. Terms
Capital assets
Change in inventory
Statement of cash flows

4. What are the basic functions of a statement of cash flows, and why is this statement necessary?
A statement of cash flows is a document that records all financial transactions of a business.
It is needed to provide a constant evaluation of the financial stability and health of the business.
A statement of cash flows:
A. Shows a company’s incoming and outgoing money during a specific period
B. Reflects a company’s liquidity or solvency
C. Evaluates changes in assets, liabilities, and equity
D. Shows a company’s ability to meet financial obligations

5. What are the major categories of a statement of cash flows?
A statement of cash flows is usually divided into the following major categories.
Each category can be composed of several types of information.
A. Net income or loss—This category shows the amount the business made or lost during a specific period.
It takes into account all the revenue and expenses of the business.

6. What are the major categories of a statement of cash flows?
B. Purchases and sales of capital assets—Capital assets are noncurrent capital items.
This category includes such assets as breeding livestock, machinery and equipment, real estate, and investments.
C. Financing activities—This category includes loans the business obtained, interest paid on loans, and payments to the owners via dividends or distributions.

7. What are the major categories of a statement of cash flows?
D. Change in inventory—Change in inventory is a calculation of the difference in the value of the inventory the business had during the specific period.
E. Expense adjustments—Included in this category are adjustments for noncash expenses, such as changes in depreciation, tax adjustments, and accrued interest.

8. What are the major categories of a statement of cash flows?
F. Net increase or decrease in cash for the period—After the categories in A through E are totaled, the business is provided with the net increase or decrease in cash for the period.
This amount is added to or subtracted from the cash amount at the beginning of the period to determine the current cash on hand.

9. How do you develop a statement of cash flows for an agricultural business?
A statement of cash flows for an agricultural business is essential for the overall success of the operation.
To develop a statement of cash flows, transactions within a given period must be assigned to the appropriate categories of the statement.
Major categories of a statement of cash flows are:
A. Net income or loss
B. Purchases and sales of capital assets
C. Financing activities
D. Change in inventory
E. Expense adjustments
F. Net increase or decrease in cash for the period

10. REVIEW
What are the basic functions of a statement of cash flows, and why is this statement necessary?
What are the major categories of a statement of cash flows?
How do you develop a statement of cash flows for an agricultural business?