How to Construct a Cash Flow Statement

The cash flow statement reports the sources and uses of a business's cash during the reporting period. Combined with the balance sheet and the income statement, the three documents make up the financial statement of a business which report a company's financial position and performance for a given period. The activities reported in the cash flow statement are segregated into three areas and are reported in order. Here's how to construct a cash flow statement.

Instructions

1. Begin with the net income for the period. If all a company did was take in cash for items and services sold and pay out cash for items and services bought, the net income would be the company's cash flow. However, most businesses include credit transactions, allowances for amortization or depreciation of assets and other non-cash transactions that have to be added back or subtracted to get an accurate report of cash provided and used by the business.

2. Report cash flows from the business's main line of work as, "Cash Flows from Operating Activities." These include cash receipts from sales or performance of services and cash expenses from payments to employees, vendors, suppliers, contractors, landlords, utilities and others who contribute to producing the company's income. Deduct non-cash revenues, such as accounts receivable, and add back expenses that did not require cash, such as amortization and depreciation. The net result is called, "Cash Provided (or Used) by Operating Activities."

3. Use the segment called, "Cash Flows from Investing Activities" to report cash payments for the purchase of business property, equipment, stock in other companies or other assets of the company. An increase in assets (other than cash or cash equivalents) is a decrease in cash, while a sale of assets or investments is an increase in cash. The net result is "Cash Provided (or Used) by Investing Activities."

4. Designate activities as "Cash Flows from Financing Activities" if they involve company debt or equity financing. These include proceeds and repayment of loans, notes or other debt instruments, cash received from the issuance of company stock and payments to stockholders for dividends or return of capital. Issuing debt instruments or stock increases cash, while retiring debt or repurchasing company stock decreases cash. The result of these transactions is "Cash Provided (or Used) by Financing Activities."

5. Construct the final section of the cash flow statement by beginning with the company's cash balance at the beginning of the period. Add the net amount of cash provide or subtract the net cash used from all three activities above. The result is the cash balance at the end of the period.