Question

Describe the content of the statement of cash flows and where certain items would appear on the statement.

Answer 1

The Statement of Cash Flows is prepared to know the ending cash balance during a particular period of time like for a month, for a quarter or for an year.

The main content in the statement of cash flows has three activities as described below -

1) Operating Activities: This section covers all the cash transactions happened in the regular ordinary course of business like cash sales, cash collection from credit sales, cash payments to run the regular course of business etc. All such cash flows are calculated and the final balance is called Net Cash Inflows from Operating Activities when the balance is positive and Net Cash Outflows from Operating Activities when the balance is negative.

2) Investing Activities: This section covers all the cash transactions happened relating to the purchase of assets or sale of assets. In simple terms, any investment to make financial benefit out of it. Such transactions are recorded under this activity. All such cash flows are calculated and the final balance is called Net Cash Inflows from Investing Activities when the balance is positive and Net Cash Outflows from Investing Activities when the balance is negative.

3) Financing Activities: This section covers all the cash transactions happened relating to issue of shares, issue of notes, bonds or debt, purchase of shares etc, and any transactions relating to run the business by bringing the cash into the business or repayment of financial loans, payment of dividends or interest etc. All such cash flows are calculated and the final balance is called Net Cash Inflows from Financing Activities when the balance is positive and Net Cash Outflows from Financing Activities when the balance is negative.

All these case flows from three activities are added to the beginning cash balance in order to calculate the ending cash balance for that particular period.