How to Find the Final Amount in a Cash-Flow Statement

Cash-flow statements are one of the four basic financial statements.

Cash flow is a change in a business' cash and cash equivalents. A cash inflow is an increase in cash and cash equivalents while a cash outflow is a decrease in the same. Net cash flow for the period is not the same as a business' net income for the period under most accounting bases. Cash flows for the business are described in detail on the cash-flow statement and separated into three categories based on the nature of their source transactions -- operating activities, investing activities, and financing activities. Net cash flows from operating, investing, and financing activities added together are equal to total net cash flow for the period.

Instructions

1. Calculate the business's net cash flow from operating activities. Operating activities include all activities related to the business' acquisition of its products intended for sale and the conversion of those products to actual revenue. Net cash flow can be calculated using either the direct method or the indirect method.

   Direct method means finding and listing all such cash flows before adding them up to produce the net cash flow from operating activities. For example, if the business received $100,000 in cash from customers and paid out $80,000 in cash to its workers and suppliers, that business has a net cash flow of $20,000 from operating activities.

   Indirect method means adding cash-based changes and eliminating non-cash-basis transactions from net income to calculate net cash flow from operating activities. For example, if the business had net income of $60,000, depreciation and other non-cash expenses of $20,000, increases across the period of $10,000 each in its accounts receivable and payable, and an increase of $20,000 in its inventories of products intended for sale; it would need to deduct the non-cash expenses, and deduct the increase in accounts receivable but add on the increase in accounts payable, and deduct the increase in inventories from net income to produce the net cash flow of $20,000 from operating activities.

2. Calculate the business' net-cash flow from investing activities. Investing activities include all changes made to the business' long-term assets. For example, the purchase of a building would be included under investing activities, while the sale of a patent would be included under the same. Direct method is the best method to account for net-cash flow from investing activities. For example, if the business spent $20,000 in cash to purchase a piece of equipment and sold outdated machines for $5,000, that business has produced a net-cash outflow of $15,000 from investing activities.

3. Calculate the business's net-cash flow from financing activities. Financing activities relate to long-term liabilities such as long-term debt and the business' equity. Interest paid on long-term debt and dividends paid to shareholders are both examples of financing activities. Once more, direct method is the most suitable to calculate net-cash flow from financing activities. For example, if the business spent $2,000 in cash on interest and another $8,000 in dividends paid to its shareholders but received $20,000 in cash as investment from its shareholders, that business has produced a net-cash flow of $10,000 from financing activities.

4. Sum up net cash flows from operating, investing, and financing activities in order to produce the business' net cash flow for the period. Using the previous examples, this business has produced a net-cash flow of $15,000 for the period in question.

References

• IAS Plus: IAS 1, Presentation of Financial Statements
• IAS Plus: IAS 7, Statement of Cash Flows
• AccountingCoach: Cash Flow Statement