Statement of Cash Flows, also known as Cash Flow Statement , presents the movement in cash flows over the period as classified under operating, investing and financing activities.

Following is an illustrative cash flow statement presented according to the indirect method suggested in IAS 7 Statement of Cash Flows:.

As income statement and balance sheet are prepared under the accruals basis of accounting , it is necessary to adjust the amounts extracted from these financial statements e.

All cash flows are classified under operating, investing and financing activities as discussed below. Cash flow from operating activities presents the movement in cash during an accounting period from the primary revenue generating activities of the entity.

For example, operating activities of a hotel will include cash inflows and outflows from the hotel business e. Profit before tax as presented in the income statement could be used as a starting point to calculate the cash flows from operating activities.

Cash Flow Statement - Example and Explanation

Following adjustments are required to be made to the profit before tax to arrive at the cash flow from operations:. Cash flow from investing activities includes the movement in cash flow as a result of the purchase and sale of assets other than those which the entity primarily trades in e.

So for example, in case of a manufacturer of cars, proceeds from the sale of factory plant shall be classified as cash flow from investing activities whereas the cash inflow from the sale of cars shall be presented under the operating activities. Cash flow from financing activities includes the movement in cash flow resulting from the following:.

Statement of cash flows provides important insights about the liquidity and solvency of a company which are vital for survival and growth of any organization. It also enables analysts to use the information about historic cash flows to form projections of future cash flows of an entity e.

By summarizing key changes in financial position during a period, cash flow statement serves to highlight priorities of management.

For example, increase in capital expenditure and development costs may indicate a higher increase in future revenue streams whereas a trend of excessive investment in short term investments may suggest lack of viable long term investment opportunities.

Furthermore, comparison of the cash flows of different entities may better reveal the relative quality of their earnings since cash flow information is more objective as opposed to the financial performance reflected in income statement which is susceptible to significant variations caused by the adoption of different accounting policies.

12 Month Cash Flow Statement

Download a free blank excel template of statement of cash flows. Statement of Changes in Equity. User of Accounting Information.

Cash Flow Statement | Format | Example | Sections

Types of Financial Statements. Statement of Financial Position. Purpose of Financial Statements. Limitations of Accounting and Financial Reporting.