Format Of Cash Flow Statement

Cash flow statement is one of the financial statements by most businesses for financial reporting. The main purpose of the statement of cash flow is to report the sources and uses of cash during the reporting period. There are different format of cash flow statement. The most commonly used format of statement of cash flow is divided into three sections:  cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

Cash flow from operating activities includes the activities of production, sales and delivery of a company’s product. The activities of investing activities include buy and sale of long-term assets including items such as capital expenditures and investments. In fact, it includes all the investment done on the behalf of the firm. However, purchases of plant, property and equipment are included as capital expenditures. Cash for purposes of the cash flow statement normally includes cash and cash equivalents. 

Cash flow from operating activities can be presented in two cash flow statement format. It can either be presented in a direct format or in an indirect format. Let’s know in details about these two different formats. First, let’s point out that the information reported for the investing and financing activities, doesn’t change.  The format variable here affects only the operating activities cash statements.  

Direct format - The direct format of reporting cash flow is a very simple format. This report only contains information of the period covered, and does not have information to the income statement and balance sheet.  The information reported in this format is somewhat straightforward.  When you use the direct format of cash flow statement, there should also be a reconciliation schedule attached, which in essence is the indirect method.

Indirect format – This format of cash flow statement is more frequently used and is more common than direct format. This format of reporting cash flow statement is less expensive to use. The access to the information used to create a cash flow statement through the indirect format is more readily available because of the fact that changes in the cash account results in a change in one or more non-cash accounts. The changes to these accounts are presented on the Income Statement and the Owner Equity Statement.  Then it is simply a matter of pulling information from those statements in order to prepare the cash flow statement.