Cash flow Statement records only the cash that had been received or paid. Compared to other financial statements, Cash Flow Statement can be considered vary accurate because every record requires receipt as proof and involves little assumption.
Cash flow Statement basically can be divided into three categories based on the classification of the function of cash：
1) NET CASH FLOW FROM OPERATING ACTIVITIES
2) NET CASH FLOW FROM INVESTING ACTIVITIES
3) NET CASH FLOW FROM FINANCING ACTIVITIES
Cash flow Statement basically can be divided into three categories based on the classification of the function of cash：
1) NET CASH FLOW FROM OPERATING ACTIVITIES
2) NET CASH FLOW FROM INVESTING ACTIVITIES
3) NET CASH FLOW FROM FINANCING ACTIVITIES
Cash Flow Statement Template
Components of Cash Flow Statement :
1) ADJUSTMENT FOR NON-OPERATING INCOMES/EXPENSES : Remove incomes or expenses that are not included in operating activities. Examples are financial incomes, financial costs.
2) ADJUSTMENT FOR NON-CASH ITEMS : Remove items that are included in calculating profit but not involve cash payment. Examples are depreciation, amortisation and impairment.
3) ADJUSTMENT FOR WORKING CAPITALS: Adjust profit with working capitals because the sales do not involve cash transfer. Examples are receivables, payables and inventories.
4) NET CASH FLOW FROM OPERATING ACTIVITIES : Cash flow earned by company main business.
5) NET CASH FLOW FROM INVESTING ACTIVITIES : Cash flow associated with acquiring and disposing non-current assets. Examples are property, equipment and security.
6) NET CASH FLOW FROM FINANCING ACTIVITIES: Cash flow related to obtain and repay capital and debt. Examples are interest paid and borrowing.
7) NET INCREASE IN CASH AND CASH EQUIVALENTS : Net cash flow received during this year.
8) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR : Cash owned by company in last year financial report.
9) CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR : Total cash owned by company now. (or more accurate at the moment of preparing this financial report).
2) ADJUSTMENT FOR NON-CASH ITEMS : Remove items that are included in calculating profit but not involve cash payment. Examples are depreciation, amortisation and impairment.
3) ADJUSTMENT FOR WORKING CAPITALS: Adjust profit with working capitals because the sales do not involve cash transfer. Examples are receivables, payables and inventories.
4) NET CASH FLOW FROM OPERATING ACTIVITIES : Cash flow earned by company main business.
5) NET CASH FLOW FROM INVESTING ACTIVITIES : Cash flow associated with acquiring and disposing non-current assets. Examples are property, equipment and security.
6) NET CASH FLOW FROM FINANCING ACTIVITIES: Cash flow related to obtain and repay capital and debt. Examples are interest paid and borrowing.
7) NET INCREASE IN CASH AND CASH EQUIVALENTS : Net cash flow received during this year.
8) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR : Cash owned by company in last year financial report.
9) CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR : Total cash owned by company now. (or more accurate at the moment of preparing this financial report).
Further Explanation about Cash Flow Statement
Cash Flow Statement is usually presented in indirect form. Indirect form means it is not direct form. The main reason indirect form is used is to show to shareholders how to link the cash flow that received with the income statement. It starts from PROFIT BEFORE TAX (PBT) to calculate the OPERATING CASH FLOW (OCF) or NET CASH FLOW FROM OPERATING ACTIVITIES.
If we compared PBT with OCF,
1) We can find that many item that is included in PBT which does not belong to OCF. The first one is NON-OPERATING INCOMES/EXPENSES. PBT includes NON-OPERATING INCOMES/EXPENSES such as interest received / interest paid that belong to NET CASH FLOW FROM INVESTING ACTIVITIES and NET CASH FLOW FROM FINANCING ACTIVITIES. This item needs to be deducted from PBT to calculate OCF.
2) We also can find that NON-CASH ITEMS are included in PBT, such as DEPRECIATION. When a company buys a machine, cash already been paid. So no cash involved afterwards. OCF only records items involved in cash transfer only. Therefore, this item need to be deducted.
3) PBT only concerns how much products are sold in one year, but OCF concerns about how much cash that received in one year.Therefore, PBT need ADJUSTMENT FOR WORKING CAPITALS to calculate OCF.
Firstly, when a product is sold for credit, which means RECEIVABLES in BALANCE SHEET will increase. This will cause OCF becoming less than PBT. Therefore the increases in RECEIVABLES have to be deducted from PBT to get OCF.
Secondly, when a company buy materials from supplier in credit, the expense will be included in PBT and recorded in COST OF GOOD SOLD. This will cause PAYABLES in BALANCE SHEET to increase . However no cash is paid out. So it will cause PBT to be less than OCF. So the increase in PAYABLES should be added into PBT to calculate OCF.
Thirdly, when a company use material in inventory to produce product to sell, the expense will be included in PBT and recorded in COST OF GOOD SOLD. This will cause INVENTORY in BALANCE SHEET to decrease. However no cash is paid out. So it will cause PBT to be less than OCF. So the decrease in INVENTORY should be added into PBT to calculate OCF.
Cash Flow Statement is usually presented in indirect form. Indirect form means it is not direct form. The main reason indirect form is used is to show to shareholders how to link the cash flow that received with the income statement. It starts from PROFIT BEFORE TAX (PBT) to calculate the OPERATING CASH FLOW (OCF) or NET CASH FLOW FROM OPERATING ACTIVITIES.
If we compared PBT with OCF,
1) We can find that many item that is included in PBT which does not belong to OCF. The first one is NON-OPERATING INCOMES/EXPENSES. PBT includes NON-OPERATING INCOMES/EXPENSES such as interest received / interest paid that belong to NET CASH FLOW FROM INVESTING ACTIVITIES and NET CASH FLOW FROM FINANCING ACTIVITIES. This item needs to be deducted from PBT to calculate OCF.
2) We also can find that NON-CASH ITEMS are included in PBT, such as DEPRECIATION. When a company buys a machine, cash already been paid. So no cash involved afterwards. OCF only records items involved in cash transfer only. Therefore, this item need to be deducted.
3) PBT only concerns how much products are sold in one year, but OCF concerns about how much cash that received in one year.Therefore, PBT need ADJUSTMENT FOR WORKING CAPITALS to calculate OCF.
Firstly, when a product is sold for credit, which means RECEIVABLES in BALANCE SHEET will increase. This will cause OCF becoming less than PBT. Therefore the increases in RECEIVABLES have to be deducted from PBT to get OCF.
Secondly, when a company buy materials from supplier in credit, the expense will be included in PBT and recorded in COST OF GOOD SOLD. This will cause PAYABLES in BALANCE SHEET to increase . However no cash is paid out. So it will cause PBT to be less than OCF. So the increase in PAYABLES should be added into PBT to calculate OCF.
Thirdly, when a company use material in inventory to produce product to sell, the expense will be included in PBT and recorded in COST OF GOOD SOLD. This will cause INVENTORY in BALANCE SHEET to decrease. However no cash is paid out. So it will cause PBT to be less than OCF. So the decrease in INVENTORY should be added into PBT to calculate OCF.
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dear poh suan, i have a question for this 6) NET CASH FLOW FROM FINANCING ACTIVITIES: Cash flow related to obtain and repay capital and debt. Examples are interest paid and borrowing.
ReplyDeleteif a company is repaying term loan of 12k/month, with the principle of 10k+2k interest, that made up total repayment of 144k/year, so it should be record as (144k) in NET CASH FLOW FROM FINANCING ACTIVITIES or only record the interest expenses of (24k)?
thanks in advance
It should be recorded as 24k in this case. The remaining will be recognized as Repayment of borrowings.
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