financial accounting, a cash flow statement,
also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements.
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 or 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
• Shareholders of the business.
Cash flow activities
The cash flow statement is partitioned into three segments, namely: 1) cash flow resulting from operating activities; 2) cash flow resulting from investing activities;and 3) cash flow resulting from financing activities.
The money coming into the business is called cash inflow, and money going out from the business is called cash outflow.
Operating activities
Operating activities include the production, sales and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising, and shipping the product.
Under IAS 7, operating cash flows include:[11]
• Receipts from the sale of goods or services
• Receipts for the sale of loans, debt or equity instruments in a trading portfolio
• Interest received on loans
• Payments to suppliers for goods and services.
• Payments to employees or on behalf of employees
• Interest payments (alternatively, this can be reported under financing activities in IAS 7, and US GAAP)
• buying Merchandise
Items which are added back to [or subtracted from, as appropriate] the net income figure (which is found on the Income Statement) to arrive at cash flows from operations generally include:
• Depreciation (loss of tangible asset value over time)
• Deferred tax
• Amortization (loss of intangible asset value over time)
• Any gains or losses associated with the sale of a non-current asset, because associated cash flows do not belong in the operating section.(unrealized gains/losses are also added back from the income statement)
[edit] Investing activities
Examples of Investing activities are
• Purchase or Sale of an asset (assets can be land, building, equipment, marketable securities, etc.)
• Loans made to suppliers or received from customers
• Payments related to mergers and acquisitions.
• Dividends received on equity securities
Financing activities
Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income. Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement.
Under IAS 7,
• Proceeds from issuing short-term or long-term debt
• Payments of dividends
• Payments for repurchase of company shares
• Repayment of debt principal, including capital leases
• For non-profit organizations, receipts of donor-restricted cash that is limited to long-term purposes
Items under the financing activities section include:
• Dividends paid
• Sale or repurchase of the company's stock
• Net borrowings
• Payment of dividend tax
Disclosure of non-cash activities
Under IAS 7, non-cash investing and financing activities are disclosed in footnotes to the financial statements. Under US General Accepted Accounting Principles (GAAP), non-cash activities may be disclosed in a footnote or within the cash flow statement itself. Non-cash financing activities may include[11]
• Leasing to purchase an asset
• Converting debt to equity
• Exchanging non-cash assets or liabilities for other non-cash assets or liabilities
• Issuing shares in exchange for assets
Direct method
The direct method for creating a cash flow statement reports major classes of gross cash receipts and payments. Under IAS 7, dividends received may be reported under operating activities or under investing activities. If taxes paid are directly linked to operating activities, they are reported under operating activities; if the taxes are directly linked to investing activities or financing activities, they are reported under investing or financing activities.
Sample cash flow statement using the direct method[13]
Cash flows from (used in) operating activities
Cash receipts from customers 9,500
Cash paid to suppliers and employees (2,000)
Cash generated from operations (sum) 7,500
Interest paid (2,000)
Income taxes paid (3,000)
Net cash flows from operating activities 2,500
Cash flows from (used in) investing activities
Proceeds from the sale of equipment 7,500
Dividends received 3,000
Net cash flows from investing activities 10,500
Cash flows from (used in) financing activities
Dividends paid (2,500)
Net cash flows used in financing activities (2,500)
.
Net increase in cash and cash equivalents 10,500
Cash and cash equivalents, beginning of year 1,000
Cash and cash equivalents, end of year $11,500
also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements.
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 or 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
• Shareholders of the business.
Cash flow activities
The cash flow statement is partitioned into three segments, namely: 1) cash flow resulting from operating activities; 2) cash flow resulting from investing activities;and 3) cash flow resulting from financing activities.
The money coming into the business is called cash inflow, and money going out from the business is called cash outflow.
Operating activities
Operating activities include the production, sales and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising, and shipping the product.
Under IAS 7, operating cash flows include:[11]
• Receipts from the sale of goods or services
• Receipts for the sale of loans, debt or equity instruments in a trading portfolio
• Interest received on loans
• Payments to suppliers for goods and services.
• Payments to employees or on behalf of employees
• Interest payments (alternatively, this can be reported under financing activities in IAS 7, and US GAAP)
• buying Merchandise
Items which are added back to [or subtracted from, as appropriate] the net income figure (which is found on the Income Statement) to arrive at cash flows from operations generally include:
• Depreciation (loss of tangible asset value over time)
• Deferred tax
• Amortization (loss of intangible asset value over time)
• Any gains or losses associated with the sale of a non-current asset, because associated cash flows do not belong in the operating section.(unrealized gains/losses are also added back from the income statement)
[edit] Investing activities
Examples of Investing activities are
• Purchase or Sale of an asset (assets can be land, building, equipment, marketable securities, etc.)
• Loans made to suppliers or received from customers
• Payments related to mergers and acquisitions.
• Dividends received on equity securities
Financing activities
Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income. Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement.
Under IAS 7,
• Proceeds from issuing short-term or long-term debt
• Payments of dividends
• Payments for repurchase of company shares
• Repayment of debt principal, including capital leases
• For non-profit organizations, receipts of donor-restricted cash that is limited to long-term purposes
Items under the financing activities section include:
• Dividends paid
• Sale or repurchase of the company's stock
• Net borrowings
• Payment of dividend tax
Disclosure of non-cash activities
Under IAS 7, non-cash investing and financing activities are disclosed in footnotes to the financial statements. Under US General Accepted Accounting Principles (GAAP), non-cash activities may be disclosed in a footnote or within the cash flow statement itself. Non-cash financing activities may include[11]
• Leasing to purchase an asset
• Converting debt to equity
• Exchanging non-cash assets or liabilities for other non-cash assets or liabilities
• Issuing shares in exchange for assets
Direct method
The direct method for creating a cash flow statement reports major classes of gross cash receipts and payments. Under IAS 7, dividends received may be reported under operating activities or under investing activities. If taxes paid are directly linked to operating activities, they are reported under operating activities; if the taxes are directly linked to investing activities or financing activities, they are reported under investing or financing activities.
Sample cash flow statement using the direct method[13]
Cash flows from (used in) operating activities
Cash receipts from customers 9,500
Cash paid to suppliers and employees (2,000)
Cash generated from operations (sum) 7,500
Interest paid (2,000)
Income taxes paid (3,000)
Net cash flows from operating activities 2,500
Cash flows from (used in) investing activities
Proceeds from the sale of equipment 7,500
Dividends received 3,000
Net cash flows from investing activities 10,500
Cash flows from (used in) financing activities
Dividends paid (2,500)
Net cash flows used in financing activities (2,500)
.
Net increase in cash and cash equivalents 10,500
Cash and cash equivalents, beginning of year 1,000
Cash and cash equivalents, end of year $11,500
No comments:
Post a Comment