CASH FLOW STATEMENT

Equation: Assets= Owner's Equity+ liabilities

Definition

Provides a snapshot of a company's balance between its assents, liabilities and owners' equity at a specific point in time

Cash flow statement

-Records a company's cash inflows and cash outflows over a defined period of time

- Usually derived from the income statement and balance sheet

-Shows where the company's cash originated, how the company used its cash and if the company has enough cash to return its loans and continue to operate

THREE SECTIONS

Operating cash flow

- Includes cash generated by and required for the daily operations of a business.

- Ex: Cash received from the same of products, payment to suppliers, salaries, rent

- Two methods for calculating it, Indirect and Direct.

-Direct- Adjusting each item on the income statement from an accrual basis to a cash basis

-Indirect-Adding and subtracting non cash revenue and expenses from net income.

Investing Cash Flow

-Includes cash used for investing in long term assets and cash received from the sale of such investments

-Examples- purchase of property, sale of debt, purchase of equipment

Financing Cash Flow

-Includes cash paid to or received from external sources such as lenders, investors and share holders.

-Examples: Dividends paid, issuance of bonds, issuance of stock and bank loans