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How to prepare a cash flow statement

Saturday, September 13, 2014 at 4:11PM
Steven Bragg in Reporting

A statement of cash flows contains information about the flows of cash into and out of a company, and
the uses to which the cash is put. The statement is comprised of three sections, in which are presented
the cash flows that occurred during the reporting period relating to the following:
Operations
Investing activities
Financing activities
The statement of cash flows is part of the financial statements, and as such is heavily reviewed by the
users of the financial statements.

The most commonly used format for the statement of cash flows is called the indirect method. The
general layout of an indirect method statement of cash flows is shown below, along with an explanation
of the source of the information in the statement. The sources of information appearing in the table can
be used to prepare a cash flow statement.
ABC Company
Statement of Cash Flows (indirect method)
for the year ended 12/31/20X1
Line Item

Derivation

Cash flows from operating

activities
Net income

From the net income line on the income statement

Adjustments for:
Depreciation and amortization

From the corresponding line items in the income statement

Provision for losses on

accounts receivable

From the change in the allowance for doubtful accounts in the

period

Gain/loss on sale of facility

From the gain/loss accounts in the income statement

Increase/decrease in trade

Change in trade receivables during the period, from the balance

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receivables

sheet

Increase/decrease in
inventories

Change in inventories during the period, from the balance sheet

Increase/decrease in trade
payables

Change in trade payables during the period, from the balance sheet

Cash generated from

operations

Summary of the preceding items in this section

Cash flows from investing

activities
Purchase of fixed assets

Itemized in the fixed asset accounts during the period

Proceeds from sale of fixed

assets

Itemized in the fixed asset accounts during the period

Net cash used in investing

activities

Summary of the preceding items in this section

Cash flows from financing

activities
Proceeds from issuance of
common stock

Net increase in the common stock and additional paid-in capital

accounts during the period

Proceeds from issuance of

long-term debt

Itemized in the long-term debt account during the period

Dividends paid

Itemized in the retained earnings account during the period

Net cash used in financing

activities

Summary of the preceding items in this section

Net change in cash and cash

equivalents

Summary of all preceding subtotals

A less commonly-used format for the statement of cash flows is the direct method. The general layout
of the direct method statement of cash flows is shown below, along with an explanation of the source of
the information in the statement. This information can be used to prepare a cash flow statement.
ABC Company
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Statement of Cash Flows (direct method)

for the year ended 12/31/20X1
Line Item

Derivation

Cash flows from operating

activities
Cash receipts from
customers

Summary of the cash receipts journal for the period

Cash paid to suppliers

Summary of the cash disbursements journal for the period (less the
financing payments noted below)

Cash paid to employees

Summary of the payroll journal for the period

Cash generated from

operations

Summary of the preceding items in this section

Interest paid

Itemized in the cash disbursements journal

Income taxes paid

Itemized in the cash disbursements journal

Net cash from operating

activities

Summary of the preceding items in this section

Cash flows from investing

activities
Purchase of fixed assets

Itemized in the fixed asset accounts during the period

Proceeds from sale of fixed

assets

Itemized in the fixed asset accounts during the period

Net cash used in investing

activities

Summary of the preceding items in this section

Cash flows from financing

activities
Proceeds from issuance of
common stock

Net increase in the common stock and additional paid-in capital

accounts during the period

Proceeds from issuance of

long-term debt

Itemized in the long-term debt account during the period

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Principal payment under

capital leases

Itemized in the capital leases liability account during the period

Dividends paid

Itemized in the retained earnings account during the period

Net cash used in financing

activities

Summary of the preceding items in this section

Net change in cash and

cash equivalents

Summary of all preceding subtotals

Related Topics
Statement of cash flows overview
Direct method
Indirect method
What is a funds flow statement?

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