The company’s cash position
The cash flow statement shows all of the company’s actual cash payments it made and all the cash payments it received for each accounting period. The most common accounting periods are quarterly for the first three quarters and then one final annual report.
The cash flow statement is similar to the income statement with one important difference. Whereas the income statement records when the revenue and expenditures actually occurred, the cash flow statement records when the actual cash payment was received from any revenue and when the actual cash payments are made for any expenditure.
This comes about since most businesses have a working line of credit. So for example, if a company purchases some office supplies, it may have 60 days to actually pay for it, which may mean the actual payment is made in the following period, while it is booked as an expense in the current period.
The cash flow statement is required in addition to the income statement as this statement handles the recording of what period the revenue was received and expenditures paid (this is known as an accrual accounting system).
The cash flow statement has three main sections as follows.
Cash Flows from operating activities
This section details the actual cash payments received and the cash payments made by the company during the reporting period.
It includes all cash payments received from the sales of its products and/or its services and these are listed as cash inflows. All the cash payments made to produce these products and any cash payments made to provide the services are also included here and are listed as cash outflows.
Cash inflows are positive values and cash outflows are negative values (usually expressed in brackets).
Cash Flows from investing activities
The actual cash payments made from large capital expenditures are included in this section. Included here are items such new equipment purchases, new vehicles and basically any major expenditure. This also includes acquiring other companies and any other large cash payments made.
Any cash payments received are also included here, such as the net proceeds received from the sale of older equipment or the sale of a business unit.
Cash Flows from financing activities
The cash payments received from new loans, issuing corporate bonds or selling stock to raise additional financing are included in this section as cash inflows.
The cash payments made such as paying a dividend or repaying a bank loan are included as cash outflows.
Cash Flow Statement
For an annual statement, the cash flow statement shows the current fiscal year along side the previous fiscal year for comparative purposes. For a quarterly statement, the cash flow statement shows the current period along side the previous corresponding period (which is the same quarter a year ago).
An example of a simplified cash flow statement is shown below in Table 1.
Table 1. Example of a simplified cash flow statement
| 2017 | 2016 | 2015 | |
| Operations | |||
| Net Income | 10,000 | 8,000 | 7,000 |
| Depreciation | (3,000) | (3,000) | (3,000) |
| Gains on investments | 1,000 | 0 | 0 |
| Net cash from operations | 8,000 | 5,000 | 4,000 |
| Financing | |||
| Debt repayments | (1,000) | (1,000) | (1,000) |
| Dividends paid | (2,000) | (2,000) | (1,000) |
| Net cash used in financing | (3,000) | (3,000) | (2,000) |
| Investing | |||
| New equipment | (1,000) | (1,000) | (1,000) |
| Purchase of investments | (2,000) | 0 | 0 |
| Net cash used in investing | (3,000) | (1,000) | (1,000) |
| Net change in cash | 2,000 | 1,000 | 1,000 |
| Cash at beginning of period | 8,000 | 7,000 | 6,000 |
| Cash at end of period | 10,000 | 8,000 | 7,000 |
A company’s actual cash flow statement will have more items listed for each category than the simplified example given above. The amount and the type of items listed vary from company to company and between industries. However, the basic format of listing the categories remains consistent between company reports.