cash flow statement

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cash flow statement

cash flow statement
A cash flow statement is a financial report that shows incoming and outgoing money during a particular period (often monthly or quarterly). It does not include non-cash items such as depreciation. This makes it useful for determining the short-term viability of a company, particularly its ability to pay bills.

People and groups interested in cash flow statements include:
- Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses
- Potential lenders/creditors, who want a clear picture of a company's ability to repay
- Potential investors who need to judge whether the company is financially sound
- Potential employees or contractors who need to know whether the company will be able to afford compensation

Cash flow statements are particularly important for start-up companies with limited liquid assets. These companies are vulnerable to devastating cash shortages, even when Accounts Receivable balances point to long-term financial health.

Cash Flow Info & Decision Making

"Cash is King"

Statement of Cash Flows

Statement of Cash Flow for the period 1/1/xx to 1/1/xx+1
Cash flow from operations (CFO) +/- x x
Cash flow from investing (CFI) +/- y y
Cash flow from financing (CFF) +/- z z
Equals change in cash account = change of cash balance
+ Beginning of period cash + Beginning cash
= Ending cash balance = Ending cash

Analyzing Cash Flows from Operations

- non-cash items
- depreciation
- deferred tax
- interest amortization
- accrual items, such as wages payable

Methods for preparing SCFs

- Direct Method
- Indirect Method

Examples