Basic Cash Flow Statement

Introduction to the Basic Cash Flow Statement

The basic cash flow statement is one of the main accounting statements.

The cash flow statement shows a business’s cash inflow and cash outflow over an accounting period. The accounting period can be any length but is usually a month or a year.

What Should a Cash Flow Statement Look Like?

The layout of a cash flow for a company for annual reporting purposes is legally defined. However, for management account purposes the layout should be in the format most useful for managing the business. A typical and useful format for management is shown in the example below.

Example: Basic Cash Flow Statement
Net income 10,000
Add back depreciation 12,000
Working capital -5,000
Operating activities 17,000
Capital expenditure -30,000
Investing activities -30,000
Debt repayments -10,000
New debt 26,000
New capital 12,000
Financing activities 28,000
Net cash flow 15,000
Opening cash balance 1,000
Closing cash balance 16,000

As an example, the annual report for Apple shows a typical cash flow statement layout.

The basic cash flow statement sets out to show what cash was paid or received during the period.

The cash flow statement is split into three sections, operating activities, investing activities, and financing activities. Each section deals with a particular type of cash flow as follows:

  1. Operating cash flows – generated by the main revenue producing activities of the business
  2. Investing cash flows – result in a change to long term assets
  3. Financing cash flows – result in a change in either equity or borrowings

Further details on each of these cash flows sections can be found in our classification of cash flows tutorial.

At the end of the cash flow statement, all of these cash flows are totalled to give a net cash flow which represents the net cash received or paid by the business during the accounting period.

The cash balance at the end of the accounting period is calculated by adding together the net cash flow and the cash balance at the start of the accounting period. The closing balance should always agree to the cash balance shown on the balance sheet of the business.

Understanding the Basic Cash Flow Statement

Cash flow is the key to business survival. A business can continue for a period of time without profits but it cannot continue if the cash runs out.

The basic cash flow statement will demonstrate to suppliers and the banks that the business has sufficient resources to meet its cash requirements. Any number of people could be using your basic cash flow statement to make decisions about your business. It is important that you have an understanding of what information the cash flow statement is providing and what that information is telling you.

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