Generally, cash flow statement divided into three parts.
(a) Cash Flows from Operating Activities
(b) Cash Flows from Investing Activities
(c) Cash Flows from Financing Activities
(a) Cash Flows from Operating Activities
Operating activities refers to activities related to production and sales. Operating activities are revenue generating activities. In other words, the transactions related to the determination of profit or loss are called Operating Activities.
Cash in flow and out flows from operating activities Look Like:
Cash inflow
1. Receipts from sale of goods
2. Earning interest on money invested in other companies
3. Dividend receipts
Cash outflow
1. Payment for purchases to suppliers.
2. Payment of salaries, wages to employees
3. Payment of loan interest
(b) Cash Flows from Investing Activities
Investing activities refer to activities related to purchase and sale of long-term assets. However, it is an investment outside the scope of the definition of “cash equivalent”, i.e. an investment with a maturity of more than three months.
Investing related cash inflows and outflows:
Cash inflow
1. Proceeds from sale of land, plant, and equipment.
2. Sale of shares, bonds or debentures invested in another company.
3. Recovery of loan’s principle given to other institutions.
Cash outflow
1. Purchase of land, plant, and equipment.
2. Purchase of shares, bonds or debentures of another company.
3. Loan given to other organization.
(c) Cash Flows from Financing Activities
Financing activities refers to the cash flows resulting from changes in the amount of equity capital and debt of the organization.
Financing Related cash inflows and outflows:
Cash inflow
1. Proceeds from issue or sale of equity securities.
2. Money received on issue of bonds or debentures
Cash outflow
1. Paying dividends
2. Repayment of bonds or long-term loans
Cash Flow Sample of a Company
XYZ LLC’s transactions during the last year are as follows:
1. Payment for purchase of goods $15,000.
2. Short term loan from bank $100,000.
3. Purchase of machinery $100,000.
4. Purchase of motor van $50,000.
5. Paying salary to employees $12,000.
6. Cash received on new share issue $500,000.
Cash flow statement in view of the above transactions
Operating cash flow
1. Payment for purchase of goods $15,000
5. Paying employees $12,000
$27,000
Investing cash flow
3. Purchase of machinery $100,000
4. Purchase of motor van $50,000
$150,000
Financing Cash Flows
2. Short term loan from bank $100,000
6. Cash received on new share issue $500,000
$600,000
More Resources
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