How to prepare a Cash Flow Statement

The statement of cash flow is a financial statement that represents the flow of cash into and out of the company. It also shows the usage of the cash and purposes for which the cash is used. There are three sections of a cash flow statement that can be explained as under:-

Operations

Investing Activities

Financing Activities

There are different formats and methods used to prepare a cash flow statement however the most common method of preparing a cash flow statement is called indirect method. The general format of cash flow statement can be shown as under:-

Company XYZ

Statement of Cash Flow

Indirect Method

Line Item Derivation
Cash Flows from operating activities  
Net Income From the net income line from income statement
Adjustments for:-  
Depreciation and Amortization From corresponding line items in income statement
Provision for losses on account receivable Doubtful accounts of the period
Sale facility gain or loss Income statement gain loss account
Trade Receivable increase and decrease From balance sheet /change in trade receivable
Trade payable Increase or decrease From balance sheet
Cash from operations  
   
Cash Flow from investing activities  
Fixed assets purchase From fixed asset account
Fixed asset sale From fixed asset account
Net cash  
   
Cash flows from financing activities  
Common stock issuance Increase in common stock and additional paid in capital
Long term debt From the debt account
Dividend paid From retained earnings
Net cash in financing  
Net change in cash Summary of all subtotals

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