Chapter 5: The Cash Flow Statement


Reports the company's cash in and cash out over a certain period. It is not the same as the income statement

  • 1. Income and expense may be recorded at a different time than when the cash is actually received or paid (cash method vs accrual method)
  • 2. The cash statement includes transactions that do not show up on the income statement, for example
    • 2.1. dividends (goes into retained earnings)
    • 2.2. loans (goes into cash and liabilities accounts)
Cash flows are separated into 3 categories:
  • 1. Operating Activities
    • Similar to operating income
    • This is the cashflow directly related o running the business and will be repeated each year, for example
      • Sales of goods and services
      • Payments to suppliers
      • Salaries
      • Taxes
  • 2. Investing Activities
    • Related to investments in securities (stocks, bonds etc) or capital assets, for example
      • Purchase or sale of stocks or bonds
      • Interest or dividends received from investments
      • Purchase or sale of property or equipment
  • 3. Financing Activities
    • Related to cash involving owners and creditors, for example
      • Dividends paid to shareholders
      • Taking out or paying back a loan
      • Cash received from investors to issue new shares
Cash Flow Statement
Operating Activities
Cash receipts from customers $320k
Cash paid to suppliers ($50k)
Cash paid to employees ($40k)
Income taxes ($55k)
Net Cash flow from Operating Activities $175k
Investment Activities
Cash spent on purchasing equipment ($210k)
Net Cash Flow from Investment Activities ($210k)
Financial Activities
Dividends paid to shareholders ($25k)
Cash received for new shares $250k
Net Cash Flow from Financial Activities $225k
Net increase in cash $190k

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  • 10 months ago by vince