Elaborate Cash flow statement.

Question

Accepted Answer

Cash flow statement is a financial report that shows the inflow and outflow of cash in a business over a period of time.

It shows the sources of cash inflow and the uses of cash outflow.
It is divided into three sections: operating activities, investing activities, and financing activities.
Operating activities include cash transactions related to the day-to-day business operations.
Investing activities include cash transactions related to the purchase or sale of long-term assets.
Financing activities include cash transactions related to the borrowing or repayment of debt, issuance or repurchase of stock, and payment of dividends.
The statement helps in analyzing the liquidity and solvency of a business.
Example: A company's cash flow statement shows that it has a positive cash flow from operating activities, but a negative cash flow from investing activities due to the purchase of new equipment.

Accepted Answer

There are 2 methods

Direct method

Indirect method

The later is very prominent method and in this there are three activities

Operating activities

Investing activities

Financing activities

We usually construct a cash flow statement from income statement and balance sheet. Ill elucidate the easy way to identify which items for what activities

Income statement items fall under operating activities.

Long term assets classify for investing activities

Short term assets classify for Operating activities

Equity items can be classified into Financing activities

Current liabilities classify into Operating activities

Non current liabilities classify into Financing activities.

Now that we know what it is, let's go ahead into calculating a cash flow statement

Reconcile PBT with cash flows from Operating, Investing and Financing.

Add depreciation and non cash charges.

Subtract all the cash outflows and add back all inflows. Similarly add or subtract value increases from inventory, receivables and payables. Finally once you know the cash available currently, add the opening balance and that gives you cash and equivalents at end of the period.

Elaborate Cash flow statement.

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