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How to prepare a cash flow statement

How to prepare a cash flow statement

A statement of cash flows contains information about the flows of cash into and out of a company, and the uses to which the cash is put. The statement is comprised of three sections, in which are presented the cash flows that occurred during the reporting period relating to the following:

  • Operations
  • Investing activities
  • Financing activities
  • How to prepare a cash flow statement

The statement of cash flows is part of the financial statements, and as such is heavily reviewed by the users of the financial statements.

The most commonly used format for the statement of cash flows is called the indirect methodA

n capital accounts during the period
Proceeds from issuance of long-term debtItemized in the long-term debt account during the period
Dividends paidItemized in the retained earnings account during the period
Net cash used in financing activitiesSummary of the preceding items in this section
Net change in cash and cash equivalentsSummary of all preceding subtotals

A less commonly-used format for the statement of cash flows is the direct method. The general layout of the direct method statement of cash flows is shown below, along with an explanation of the source of the information in the statement. This information can be used to prepare a cash flow statement.

How to prepare a cash flow statement

ABC Company
Statement of Cash Flows (direct method)
for the year ended 12/31/20X1

Line ItemDerivation
Cash flows from operating activities
Cash receipts from customersSummary of the cash receipts journal for the period
Cash paid to suppliersSummary of the cash disbursements journal for the period (less the financing payments noted below)
Cash paid to employeesSummary of the payroll journal for the period
Cash generated from operationsSummary of the preceding items in this section
Interest paidItemized in the cash disbursements journal
Income taxes paidItemized in the cash disbursements journal
Net cash from operating activitiesSummary of the preceding items in this section
Cash flows from investing activities
Purchase of fixed assetsItemized in the fixed asset accounts during the period
Proceeds from sale of fixed assetsItemized in the fixed asset accounts during the period
Net cash used in investing activitiesSummary of the preceding items in this section
Cash flows from financing activities
Proceeds from issuance of common stockNet increase in the common stock and additional paid-in capital accounts during the period
Proceeds from issuance of long-term debtItemized in the long-term debt account during the period
Principal payment under capital leasesItemized in the capital leases liability account during the period
Dividends paidItemized in the retained earnings account during the period
Net cash used in financing activitiesSummary of the preceding items in this section
Net change in cash and cash equivalentsSummary of all preceding subtotals

How to prepare a cash flow statement

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How to prepare a cash flow statement

How to prepare a cash flow statement

How to prepare a cash flow statement

1 comments
  1. Dinesh Repalli says:

    Dear sir,
    Whether preparation of cash flow statement using Indirect method is important from exam point of view

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