Reading Lecture Elements of a Statement of Cash Flow A cash flow statement indicates flow of cash into and out of a business organization. In most cases, an organization’s cash in hand is lower than operations, although both have to be equal and this is attributed by outstanding bills still not paid by customers. A cash flow statement helps managers: Establish the changes in a company’s cash at hand from the activities undertaken over a given reporting period. Determine the company’s sources and uses of cash. Understand operating results throughout a given operating period. There are three types of financial activities detailed in a cash flow statement, which include operating activities, investing activities, and financial activities. A cash flow statement can take two forms: direct format and indirect format. Direct method : categorizes main classes of cash receipts and cash payment differently. Indirect method : focuses differentiating net income and net cash flow from a company’s operations. This is the commonly used method due to its ability to offer a limited amount of information. A cash flow statement can be compiled with the company's balance sheets and income statements of two years/accounting periods (Heakal, 2010). In calculation of statement of cash flow, line items in which cash was used are adjusted from the net income. The cash flow statement includes line items found in the balance sheets. Net income line items from the income statement are also needed, in addition to income tax expenses and depreciation expenses (Heakal, 2010). A cash inflow on a cash flow statement is positive while cash outflow is negative. The operating activities include an adjustment part and the remainder part that indicates the necessary changes needed to reflect cash on hand after changes in the balance sheet items. Other line items in cash flow statements whose change is of significant influence include inventories, accounts payable and accrued liabilities. Adjustments, on the other hand, refer to cash flow changes based on components of the income statement that do not need cash. These include amortization, depreciation or deferred income taxes. Cash in a company can be spent in various activities, among them investing activities to help the company grow. These activities include: Mergers or acquisitions Major improvements to existing buildings Major upgrades to existing factories and equipment Purchase or sale of marketable securities Purchase or sale of property, plant, and equipment The operating activities’ bottom line indicates how much cash a certain company has spent or generated from its operating activities. The other side of the cash flow statement represents the financing activities that need money to fund operations. To gain this money, a company can raise it from outside sources if it lacks enough internally. The bottom line of financing activities shows the net cash used to finance the business. Forbes School of Business Faculty R e.

1. Reading Lecture
Elements of a Statement of Cash Flow
A cash flow statement indicates flow of cash into and out of a
business organization. In most cases, an organization’s cash in
hand is lower than operations, although both have to be equal
and this is attributed by outstanding bills still not paid by
customers. A cash flow statement helps managers:
Establish the changes in a company’s cash at hand from the
activities undertaken over a given reporting period.
Determine the company’s sources and uses of cash.
Understand operating results throughout a given operating
period.
There are three types of financial activities detailed in a cash
flow statement, which include operating activities, investing
activities, and financial activities. A cash flow statement can
take two forms: direct format and indirect format.
Direct method
: categorizes main classes of cash receipts and cash payment
differently.
Indirect method
: focuses differentiating net income and net cash flow from a
company’s operations. This is the commonly used method due
to its ability to offer a limited amount of information.
A cash flow statement can be compiled with the company's
balance sheets and income statements of two years/accounting
periods (Heakal, 2010). In calculation of statement of cash
flow, line items in which cash was used are adjusted from the
net income. The cash flow statement includes line items found
in the balance sheets. Net income line items from the income
statement are also needed, in addition to income tax expenses
and depreciation expenses (Heakal, 2010). A cash inflow on a
cash flow statement is positive while cash outflow is negative.
The operating activities include an adjustment part and the
remainder part that indicates the necessary changes needed to

2. reflect cash on hand after changes in the balance sheet items.
Other line items in cash flow statements whose change is of
significant influence include inventories, accounts payable and
accrued liabilities.
Adjustments, on the other hand, refer to cash flow changes
based on components of the income statement that do not need
cash. These include amortization, depreciation or deferred
income taxes. Cash in a company can be spent in various
activities, among them investing activities to help the company
grow. These activities include:
Mergers or acquisitions
Major improvements to existing buildings
Major upgrades to existing factories and equipment
Purchase or sale of marketable securities
Purchase or sale of property, plant, and equipment
The operating activities’ bottom line indicates how much cash a
certain company has spent or generated from its operating
activities. The other side of the cash flow statement represents
the financing activities that need money to fund operations. To
gain this money, a company can raise it from outside sources if
it lacks enough internally. The bottom line of financing
activities shows the net cash used to finance the business.
Forbes School of Business Faculty
R
eference:
Heakal, R. (2010). What is a cash flow statement?
Forbes
. Retrieved from http://www.forbes.com/2010/05/27/cash-flow-
statement-personal-finance-securities-analysis.html
Assignment
Referencing this week’s readings and lecture, describe the
following terms as they relate to the statement of cash flows:
cash, operating activities, investing activities, and financing
activities. What can creditors, investors, and other users glean
from an analysis of the statement of cash flows?