A statement of cash flows is a financial statement that presents the sources and uses of a company’s cash during a specific period of time, typically a fiscal year or quarter. The statement is intended to provide information about a company’s cash inflows (cash receipts) and outflows (cash payments) during a particular period, and to reconcile changes in the company’s cash and cash equivalents during that period. The statement of cash flows is prepared using the accrual basis of accounting, which means that it reflects the effects of transactions and other events that have been recorded in the company’s financial statements, regardless of whether cash has actually been received or paid.
The statement of cash flows is one of three primary financial statements that a company prepares, along with the balance sheet and the income statement. The statement of cash flows is typically prepared after the balance sheet and the income statement, as it relies on the data from those two statements.
The statement of cash flows is divided into three main sections:
- Operating activities: This section includes cash inflows and outflows that are related to a company’s core business operations. This includes cash received from the sale of goods or services, cash paid to suppliers for goods and services, and cash paid to employees for wages and salaries.
- Investing activities: This section includes cash inflows and outflows that are related to a company’s investments in long-term assets, such as property, plant, and equipment. This also includes cash received from the sale of long-term assets and cash paid to acquire long-term assets.
- Financing activities: This section includes cash inflows and outflows that are related to a company’s financing activities, such as the issuance of debt or equity securities and the repayment of debt. This also includes cash received from the issuance of stock and cash paid to shareholders as dividends.
The statement of cash flows is an important financial statement for investors and analysts, as it provides insight into a company’s cash-generating ability and its financial flexibility. It can also help to identify potential issues with a company’s liquidity or solvency.
