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A Cash flow statement is one of the three (3) major financial reports– income statement and balance sheet, which measures the financial strength of a company by summarizing the amount of cash or cash equivalent which enters or leaves the company within a given time period.
Since cash flow statement acts as the middleman between the income statement and balance sheet, you will need to have those other two available because differences in Revenue, expenses and credit transactions will be drawn from them to find the net income.
Cash flow statement has three (3) major components:
The following is an example of a cash flow calculation using the direct Method format.
Example: Prepare the cash flows from operating activities section of a cash flow statement by the direct method using the following information:
December 31 | 2011 | 2010 |
Accounts Receivable | $34,130 | $28,410 |
Prepaid Rent | 20,000 | 25,000 |
Prepaid Insurance | 6,800 | 6,000 |
Inventory | 23,030 | 15,450 |
Accounts Payable | 14,590 | 31,300 |
Salaries Payable | 8,310 | 5,120 |
Interest Payable | 700 | 360 |
Income Tax Payable | 2,340 | 0 |
Year Ended December 31 | 2011 | |
Net Sales | 64,970 | |
Salaries Expense | 8,610 | |
Rent Expense | 5,000 | |
Insurance Expense | 3,200 | |
Interest Expense | 1,650 |
Cash Flow from Operating Activities: | |
Cash Receipts | |
From Customers (1) | $59,250 |
Cash Payments | |
To Suppliers (2) | −24,290 |
To Employees (3) | −5,420 |
For Purchase of Prepaid Assets (4) | −4,000 |
Interest (5) | −1,310 |
Income Tax (6) | −0 |
Net Cash Flow from Operating Activities | 24,230 |
Issuing bonds (positive cash flow)
Sale of treasury stock (positive cash flow)
Loan from a financial institution (positive cash flow)
Repayment of existing loans (negative cash flow)
Cash from new stock issued (positive cash flow)
Payment of cash dividend to stockholders (negative cash flow)
Purchase of treasury stock (negative cash flow)
Repurchase of existing stock (negative cash flow)
Redemption of bonds (negative cash flow)
Example of a Cash flow statement
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