A Cash Flow Statement is a financial report that reports on cash inflows (cash recieved) and cash outflows (cash paid). It is different from a Statement of Receipts and Payments in that a Cash Flow Statement classifies cash flows into Operating, Investing and Financing activities.
Operating activities include all cash flows related to day-to-day trading activities. This includes cash sales, receipts from debtors, GST received, payments to creditors, GST paid and any payments for prepaid or accrued expenses.
Investing activities include all cash flows related to the purchase and sale of non-current assets.
Finanacing activities include all cash flows related to changes in the financial structure of the business. This means transactions that change loans and owners equity, for example paying or recieving loan principle or cash contributions or drawings by the owner.
Uses of the Cash Flow Statement
The Cash Flow Statement can be used:
- To aid decision-making about the busineses’ cash activities
- To identify whether the business is generating enough cash from its Operating activities
- To assess whether the business is meeting its budgeted cash requirements
- To assist in planing for future cash activities