Cash flows statement is part of a company’s set of financial statements, and is disclose the user about sources and uses of cash by a business. It presents information about cash generated from operations and the effects of various changes in the balance sheet on a company’s cash position.
There are two method of Cash Flow
(1) Direct Method of Cash Flow Statement
(2) Indirect Method of Cash Flow Statement
In any of this method ,Cash flow divided in main three part
1 Cash flow from Operating activity
2 Cash flow from Investing activity
3 Cash flow from Financing activity
Let us understand both the method in brief as follow
(1) Direct Method of Cash Flow Statement:The main benefit of this method is that,it reveals operating cash receipts and payments.This mehod ,presents the specific cash flows associated with items that affect cash flow. Items that typically do so include:
- Cash collected from customers
- Interest and dividends received
- Cash paid to employees
- Cash paid to suppliers
- Interest paid
- Income taxes paid
Format of Direct Method of Cash Flow Statement
| ABC Company | |
| Statement of Cash Flows | |
| For the Years Ending December 31, 20xx | |
| 20xx | |
| Cash Flows from Operating Activities | |
| Collections | xxx |
| Payments to Suppliers | xxx |
| Payments to Employees | xxx |
| Insurance Payments | xxx |
| Interest Payments | xxx |
| Other Source/(Uses) of Cash | xxx |
| Net Cash from Operating Activities | xxx |
| Cash Flows from Investing Activities | |
| Increase in Marketable Securities | xxx |
| Sale of Fixed Assets | xxx |
| Purchase of New Equipment | xxx |
| Other | xxx |
| Net Cash Used for Investing Activities | xxx |
| Cash Flows from Financing Activities | |
| Payment of Mortgage Principal | xxx |
| Transfer From/(To) Parent | xxx |
| Other | xxx |
| Net Cash from Financing Activities | xxx |
| NET INCREASE/(DECREASE) IN CASH | xxx |
| CASH, BEGINNING OF YEAR | Value |
| CASH, END OF YEAR | #VALUE! |
(2) Indirect Method of Cash Flow Statement: This marhod is very popular, because the information is relatively easily assembled from the accounts that a business normally maintains in its chart of accounts .In this method the presentation begins with net income or loss, with subsequent additions to or deductions from that amount for non-cash revenue and expense items, resulting in net income provided by operating activities.
Format of Direct Method of Cash Flow Statement
| ABC Company | |
| Statement of Cash Flows | |
| For the Years Ending December 31, 20xx | |
| 2xxx | |
| Cash Flows from Operating Activities | |
| Net Income | xxx |
| Add Expenses Not Requiring Cash: | |
| Depreciation | xxx |
| Amortization of Goodwill | xxx |
| Other | xxx |
| Other Adjustments: | |
| Add Reduction in Accounts Receivable | xxx |
| Add Increase in Wages Payable | xxx |
| Add Increase in Accounts Payable | xxx |
| Subtract Decrease in Accounts Payable | xxx |
| Subtract Increase in Inventory | xxx |
| Subtract Increase in Prepaid Expenses | xxx |
| Other | xxx |
| Net Cash from Operating Activities | xxx |
| Cash Flows from Investing Activities | |
| Increase in Marketable Securities | xxx |
| Sale of Fixed Assets | xxx |
| Purchase of New Equipment | xxx |
| Other | xxx |
| Net Cash Used for Investing Activities | xxx |
| Cash Flows from Financing Activities | |
| Payment of Mortgage Principal | xxx |
| Transfer From/(To) Parent | xxx |
| Other | xxx |
| Net Cash from Financing Activities | xxx |
| NET INCREASE/(DECREASE) IN CASH | xxx |
| CASH, BEGINNING OF YEAR | Value |
| CASH, END OF YEAR | #VALUE! |
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