How to Calculate the Cash Flow for Equipment

Cash flow from equipment is included under cash flows from investing activities.

Cash flows are defined as changes in a business's cash and cash equivalents incurred through the business running its operations for the time period in question. Cash equivalents are short-term financial instruments that are highly liquid and can be converted to cash with minimal loss in value. Cash flows are reported on the business's cash flow statement, where they are categorized based on the nature of their source transactions. Cash flow from equipment is listed under cash flows from investing activities, which relate to the acquisition and disposal of long-term tangible assets used by the business in its operations.

Instructions

1. Find all cash inflows incurred in the relevant time period through investing activities related to the business's equipment. Cash inflows are receipts of cash. For example, if a business sold used equipment for $500 in cash, that is a cash inflow of $500 from equipment.

2. Find all cash outflows incurred in the relevant time period through investing activities related to the business's equipment. Cash outflows are payment of cash and are likely to be higher than cash inflows from this particular source. For example, if the same business spent $2,000 to purchase new equipment to replace what it had sold, that is a cash outflow of $2,000 from equipment.

3. Sum up all relevant cash inflows and outflows in order to calculate the net cash flow from equipment. In this case, the business has a net cash outflow of $1,500. Net cash flow from equipment is listed under cash flows from investing activities and are included in the calculation of net cash flow from investing activities.

References

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