The Statement of Cash Flows

A third financial statement prepared by businesses is the statement of cash flows. The statement of cash flows reports events that affected a company’s cash account during a fiscal period. The statement contains three sections corresponding to operating, investing, and financing activities.

The operating activities section reports cash from selling goods and services and cash paid for expense-related activities. The investing activities section reports cash paid for equipment and other long-term assets and cash received from selling these assets. The financing activities section reports cash received from creditors and owners, cash paid to creditors as a repayment of amounts borrowed by the company, and cash paid to owners.

Exhibit below provides a statement of cash flows for Mom’s Cookie Company for January 2004 (Source data is given at the end). The results of these transactions are organized into the sections contained in the statement of cash flows.

The statement of cash flows describes the events that affected a company’s cash account during a fiscal period. The amount reported as net cash flow for the period is the change in the cash balance. The final line of the statement reports the cash balance at the end of the month and corresponds with the amount reported on the company’s balance sheet (see Exhibit). Thus, the statement of cash flows is useful for identifying how much cash a company has, where that cash came from, and how the company used its cash during a fiscal period.

Source data for the Statement of Cash Flows above: