Statement of cash flow is one of the important statements of organizations because it is used to highlight cash activities of an organization. Basic purpose of statement of cash flow is to underline all those activities that have direct or indirect affect on over all cash balance. It is necessary to keep an eye on the cash operations of your organization in order to maintain sufficient cash balance every time in order to fulfill all sudden cash needs. In absence of cash, your company can miss major flourishing opportunities. Statement of cash flow is necessary to prepare because there are lots of questions that cannot be answered by income statement or balance sheet. It is a valuable tool to design a perfect budget because statement of cash flow gives you clear picture of your income and expenses. Here is preview of this Statement of Cash Flow Template,
Important Parts of Statement of Cash Flow
Cash flow statement is really useful for all business organizations therefore it is necessary to properly design statement of cash flow and for this purpose you have to identify all important elements that should be included in the statement of cash flow. Cash flow statement is divided into three following sections:
Operative activities directly affect the cash inflows and outflows of the organization. These activities are responsible to determine net income. Cash inflows generate from sales of goods as well as services, sales of stock and from income on investments. On the other hand, purchases of equipment and inventory, payment of interests, loans, salaries and different other expenses result in cash outflows.
Activities that can change the aggregate cash position of a company are known as investing activities. Businesses often invest in financial markets and operating subsidiaries and get a fixed amount of return according to their investment. Some organizations invest in capital assets such as purchase of plant and other equipment.
Issuance of cash dividend, adding or changing loans or issuance or selling more stock are some financing activities of an organization. Usually these activities are calculated with the help of following formula.
Cash Received from Issuing Stock or Debt – Cash Paid as Dividends and for Re-Acquisition of Debt/Stock
Format of Statement of Cash Flows
Above discussed three activities are important to include in the statement of cash flows in order to get accurate picture of your company’s income as well as expenditure. Cash flows from operating activities will be appeared at first place in the statement of cash flows followed by investing activities and financing activities section. Some cash flows are reported separately such as individual investment and financing activities, purchase of property, issuance of debt etc. Net changes in the statement of cash flows are reconciled with opening and ending balances in the comparative balance sheets.
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