How does the cash flow statement work?

Question

Accepted Answer

A Cash Flow Statement summarizes cash inflows and outflows over a period, reflecting a company's liquidity and financial health.

Divided into three sections: Operating, Investing, and Financing activities.
Operating activities include cash received from customers and cash paid to suppliers.
Investing activities involve cash spent on purchasing assets like equipment or cash received from selling assets.
Financing activities cover cash transactions related to debt and equity, such as issuing shares or repaying loans.
Example: A company sells a piece of equipment for $10,000, which is recorded as a cash inflow in investing activities.

Accepted Answer

A cash flow statement is a financial statement that shows how cash entered and exited a company during an accounting period.

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.

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.

Accepted Answer

A financial statement provide aggregate data of all cash inflow and outflow of a person or company.

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How does the cash flow statement work?

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