Cash flow statement

A Statement of Cash Flows (or Cash Flow Statement) shows the movement in the Cash account of a company. Accountants follow the accrual basis in measuring income and expenses. However, many users are also interested in how much cash came in and went out of the company; hence the need to present a Statement of Cash Flows.

Statement of Cash Flows Example

Here is a sample cash flow statement for Carter Printing Services, a service type sole proprietorship business.

All amounts are assumed and simplified for illustration purposes.

Carter Printing Services
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash Flow from Operating Activities:
Cash received from customers $ 146,000
Cash paid for expenses (81,000)
Cash paid to suppliers (47,500) $ 17,500
Cash Flow from Investing Activities:
Cash paid to acquire additional equipment (20,300)
Cash Flow from Financing Activities:
Cash received from investment of owner $ 10,000
Cash received from bank loan proceeds 50,000
Cash paid to bank for partial loan repayment (27,000)
Cash paid to owner for withdrawal (20,000) 13,000
Net Increase (Decrease) in Cash for the Year $ 10,200
Add: Cash – January 1, 2021 10,800
Cash – December 31, 2021 $ 21,000

Explanation and Pointers

  1. Statement of Cash Flows presents the inflows and outflows of cash in the different activities of the business, the net increase or decrease in cash, and the resulting cash balance at the end of the period. Cash inflows refer to receipts of cash while cash outflows to payments or disbursements.
  2. A typical cash flow statement starts with a heading which consists of three lines. The first line presents the name of the company; the second describes the title of the report; and the third states the period covered in the report.
  3. Notice that the third line is worded "For the Year Ended. " This means that the information included in the report covers a span of time. In the illustration above, the report presents inflows and outflows of cash for 1 year, i.e. from January 1 to December 31, 2021.
  4. Cash inflows and outflows are classified in three activities: operating, investing, and financing.
  5. Operating activities refer to the main operations of the company such as rendering of professional services, acquisition of inventories and supplies, selling of inventories for merchandising and manufacturing concerns, collection of accounts, payment of accounts to suppliers, and others. Generally, operating activities refer to those that involve current assets and current liabilities.
Key Takeaways

It presents cash inflows (receipts) and outflows (payments) in the three activities of business: operating, investing, and financing.

Operating activities pertain to the main operations of the business, such as purchasing and selling.

Investing activities involve acquisition of assets for long-term purposes, and the returns from them.

Financing activities pertain to sources of funding, and includes the receipt of the funds and the repayment thereof.