Statement of cash flows

Definition

The statement of cash flows is a financial report that outlines the cash inflows and outflows for a company over a specific period. It categorizes these flows into operating, investing, and financing activities to provide insight into the company's liquidity and financial health.

5 Must Know Facts For Your Next Test

1. The statement of cash flows is divided into three sections: operating activities, investing activities, and financing activities.
2. Operating activities include cash transactions related to net income such as receipts from customers and payments to suppliers.
3. Investing activities involve cash flows from the acquisition or sale of long-term assets like property or equipment.
4. Financing activities detail cash transactions related to equity and debt, including dividends paid and loans received.
5. The indirect method of preparing the statement begins with net income and adjusts for changes in balance sheet accounts to derive cash flow from operations.

Review Questions

• What are the three main sections of the statement of cash flows?
• How do operating activities differ from investing and financing activities on the statement of cash flows?
• What adjustments are made when using the indirect method to prepare the statement of cash flows?

Related terms

Income Statement: A financial report showing a company's revenues, expenses, and profits over a specific period.

Balance Sheet: A financial statement that provides a snapshot of what a company owns (assets) and owes (liabilities) at a particular point in time.

Statement of Owner’s Equity: A financial document that outlines changes in equity over a reporting period due to investments by owners, distributions to owners, and earnings retained in the business.