The basic of cash flow statement

 

The Basic Statement 

of Cash Flows

 

Primary Purpose of Statement

To provide information about:

1. cash receipts
2. cash payments
3. the net change in cash resulting from

Meaning of Cash Flows

1. Cash equivalents are:
1. Readily convertible to known amounts of cash
2. So near maturity that their market value is relatively insensitive to changes in interest rates.
1. treasury bills
2. commercial paper
3. money market funds
2. The term cash includes cash equivalents.

The three primary sections of the statement are:

1. Cash flows from operating activities.
2. Cash flows from investing activities.
3. Cash flows from financing activities.

Operating Activities...

Include:

1. The cash effects of transactions that create revenues and expenses and
2. Enter into determination of net income.

Involve Income Statement Items

Types of Cash Flows Operating Activities

1. Cash inflows:
1. From sale of goods or services
2. From  return on loans (interest received) and on equity securities (dividends received)
2. Cash outflows:
1. To suppliers for inventory
2. To employees for services
3. To government for taxes
4. To lenders for interest
5. To others for expenses

Investing Activities...

Include:

1. Acquiring and disposing of investments and productive long-lived assets. 
2. Lending money and collecting the loans.

Involve Investments and Long-Term Asset Items

Types of Cash Flows Investing Activities

1. Cash inflows:
1. From sale of property, plant, and equipment
2. From sale of debt or equity securities of other entities
3. From collection of principal on loans to other entities
2. Cash outflows:
1. To purchase property, plant, and equipment
2. To purchase debt or equity securities of other entities
3. To make loans to other entities

Financing Activities...

Include:

1. Obtaining cash from issuing debt and repaying the amounts borrowed
2. Obtaining cash from stockholders and paying them dividends.

Involve Long-Term Liability and Stockholders’ Equity Items

Types of Cash Flows Financing Activities

1. Cash inflows:
1. From sale of equity securities (company's own stock)
2. From issuance of debt (bonds and notes)
2. Cash outflows:
1. To stockholders as dividends
2. To redeem long-term debt or reacquire capital stock