How to create your Statement of Cash Flows
Given the following Cash Flow Worksheet...
...let's create our Statement of Cash Flows!
Inserting Operating Activities
We can insert these Operating Activities...
...into our Statement of Cash Flows like so:
STATEMENT OF CASH FLOWS
| Account | Amount |
|---|---|
OPERATING ACTIVITIES | |
| Net Income | $1,000 |
| Add the Decrease in Accounts Receivable | $500 |
| Subtract the Decrease in Wages Payable | ($500) |
| Subtract Gain on Sale of Land | ($200) |
| Cash Provided by Operating Activities | $800 |
If it's a Source of Cash...
...that means it increased our Cash balance...
STATEMENT OF CASH FLOWS
| Account | Amount |
|---|---|
OPERATING ACTIVITIES | |
| Net Income | $1,000 |
| Add the Decrease in Accounts Receivable | $500 |
| Subtract the Decrease in Wages Payable | ($500) |
| Subtract Gain on Sale of Land | ($200) |
| Cash Provided by Operating Activities | $800 |
...and if it was a Use of Cash...
...that means it decreased our Cash balance!
STATEMENT OF CASH FLOWS
| Account | Amount |
|---|---|
OPERATING ACTIVITIES | |
| Net Income | $1,000 |
| Add the Decrease in Accounts Receivable | $500 |
| Subtract the Decrease in Wages Payable | ($500) |
| Subtract Gain on Sale of Land | ($200) |
| Cash Provided by Operating Activities | $800 |
This is the nature of the "Indirect Method" of declaring cash-impacting Operating Activities.
With the Indirect Method, you start with Net Income and then add / subtract from it all operating activities dealing with non-revenue / non-expense accounts (which, are already accounted for under Net Income).
This differs from the Direct Method...
With the Direct Method, you consider all cash receipts and payments, even if they're from revenues and expenses (a.k.a. accounted for under Net Income).
All you need to know is this: use the Indirect Method unless told otherwise. It's way easier and is more common.
Inserting Investing Activities
We can insert these Investing Activities...
...into our Statement of Cash Flows like so:
STATEMENT OF CASH FLOWS
| Account | Amount |
|---|---|
OPERATING ACTIVITIES | |
| Net Income | $1,000 |
| Add the Decrease in Accounts Receivable | $500 |
| Subtract the Decrease in Wages Payable | ($500) |
| Subtract Gain on Sale of Land | ($200) |
| Cash Provided by Operating Activities | $800 |
INVESTING ACTIVITIES | |
| Cash Provided by Sale of Land | $1,000 |
| Cash Used to Purchase Equipment | ($500) |
| Cash Provided by Investing Activities | $500 |
If it's a Source of Cash...
...that means it increased our Cash balance...
STATEMENT OF CASH FLOWS
| Account | Amount |
|---|---|
OPERATING ACTIVITIES | |
| Net Income | $1,000 |
| Add the Decrease in Accounts Receivable | $500 |
| Subtract the Decrease in Wages Payable | ($500) |
| Subtract Gain on Sale of Land | ($200) |
| Cash Provided by Operating Activities | $800 |
INVESTING ACTIVITIES | |
| Cash Provided by Sale of Land | $1,000 |
| Cash Used to Purchase Equipment | ($500) |
| Cash Provided by Investing Activities | $500 |
...and if it was a Use of Cash...
...that means it decreased our Cash balance!
STATEMENT OF CASH FLOWS
| Account | Amount |
|---|---|
OPERATING ACTIVITIES | |
| Net Income | $1,000 |
| Add the Decrease in Accounts Receivable | $500 |
| Subtract the Decrease in Wages Payable | ($500) |
| Subtract Gain on Sale of Land | ($200) |
| Cash Provided by Operating Activities | $800 |
INVESTING ACTIVITIES | |
| Cash Provided by Sale of Land | $1,000 |
| Cash Used to Purchase Equipment | ($500) |
| Cash Provided by Investing Activities | $500 |
Inserting Financing Activities
We can insert these Financing Activities...
...into our Statement of Cash Flows like so:
STATEMENT OF CASH FLOWS
| Account | Amount |
|---|---|
OPERATING ACTIVITIES | |
| Net Income | $1,000 |
| Add the Decrease in Accounts Receivable | $500 |
| Subtract the Decrease in Wages Payable | ($500) |
| Subtract Gain on Sale of Land | ($200) |
| Cash Provided by Operating Activities | $800 |
INVESTING ACTIVITIES | |
| Cash Provided by Sale of Land | $1,000 |
| Cash Used to Purchase Equipment | ($500) |
| Cash Provided by Investing Activities | $500 |
FINANCING ACTIVITIES | |
| Cash Provided from Notes Payable - Long Term | $1,500 |
| Cash Used to Pay Dividends | ($500) |
| Cash Provided by Financing Activities | $1,000 |
If it's a Source of Cash...
...that means it increased our Cash balance...
STATEMENT OF CASH FLOWS
| Account | Amount |
|---|---|
OPERATING ACTIVITIES | |
| Net Income | $1,000 |
| Add the Decrease in Accounts Receivable | $500 |
| Subtract the Decrease in Wages Payable | ($500) |
| Subtract Gain on Sale of Land | ($200) |
| Cash Provided by Operating Activities | $800 |
INVESTING ACTIVITIES | |
| Cash Provided by Sale of Land | $1,000 |
| Cash Used to Purchase Equipment | ($500) |
| Cash Provided by Investing Activities | $500 |
FINANCING ACTIVITIES | |
| Cash Provided from Notes Payable - Long Term | $1,500 |
| Cash Used to Pay Dividends | ($500) |
| Cash Provided by Financing Activities | $1,000 |
...and if it was a Use of Cash...
...that means it decreased our Cash balance!
STATEMENT OF CASH FLOWS
| Account | Amount |
|---|---|
OPERATING ACTIVITIES | |
| Net Income | $1,000 |
| Add the Decrease in Accounts Receivable | $500 |
| Subtract the Decrease in Wages Payable | ($500) |
| Subtract Gain on Sale of Land | ($200) |
| Cash Provided by Operating Activities | $800 |
INVESTING ACTIVITIES | |
| Cash Provided by Sale of Land | $1,000 |
| Cash Used to Purchase Equipment | ($500) |
| Cash Provided by Investing Activities | $500 |
FINANCING ACTIVITIES | |
| Cash Provided from Notes Payable - Long Term | $1,500 |
| Cash Used to Pay Dividends | ($500) |
| Cash Provided by Financing Activities | $1,000 |
Declare impact of change in Cash
From here, we can sum these values to determine that we had a total increase in Cash of $2,300 over the course of the period!
STATEMENT OF CASH FLOWS
| Account | Amount |
|---|---|
OPERATING ACTIVITIES | |
| Net Income | $1,000 |
| Add the Decrease in Accounts Receivable | $500 |
| Subtract the Decrease in Wages Payable | ($500) |
| Subtract Gain on Sale of Land | ($200) |
| Cash Provided by Operating Activities | $800 |
INVESTING ACTIVITIES | |
| Cash Provided by Sale of Land | $1,000 |
| Cash Used to Purchase Equipment | ($500) |
| Cash Provided by Investing Activities | $500 |
FINANCING ACTIVITIES | |
| Cash Provided from Notes Payable - Long Term | $1,500 |
| Cash Used to Pay Dividends | ($500) |
| Cash Provided by Financing Activities | $1,000 |
Total Increase in Cash over Period | $2,300 |
Then, after this, we need to basically show that when we add this to the Beginning Cash Balance, it results in the correct Ending Cash Balance of $2,300...
STATEMENT OF CASH FLOWS
| Account | Amount |
|---|---|
OPERATING ACTIVITIES | |
| Net Income | $1,000 |
| Add the Decrease in Accounts Receivable | $500 |
| Subtract the Decrease in Wages Payable | ($500) |
| Subtract Gain on Sale of Land | ($200) |
| Cash Provided by Operating Activities | $800 |
INVESTING ACTIVITIES | |
| Cash Provided by Sale of Land | $1,000 |
| Cash Used to Purchase Equipment | ($500) |
| Cash Provided by Investing Activities | $500 |
FINANCING ACTIVITIES | |
| Cash Provided from Notes Payable - Long Term | $1,500 |
| Cash Used to Pay Dividends | ($500) |
| Cash Provided by Financing Activities | $1,000 |
Total Increase in Cash over Period | $2,300 |
| Beginning Cash Balance | $0 |
| Increase in Cash over Period Cash Balance | $2,300 |
| Ending Cash Balance | $2,300 |
...which lines up with our Balance Sheet!
BALANCE SHEET
| Account | Amount |
|---|---|
ASSETS | |
| Cash | $2,300 |
| Accounts Receivable | $0 |
| Equipment | $500 |
| Land | $0 |
| Total Assets | $2,800 |
LIABILITIES | |
| Notes Payable - Long Term | $1,500 |
| Wages Payable | $0 |
| Total Liabilities | $1,500 |
EQUITY | |
| Common Stock | $1,000 |
| Retained Earnings | $500 |
| Total Equity | $1,500 |