CASH FLOW STATEMENT – CASH FLOW
Balance sheet and income statement are traditional finance statements. However, apart from these, a set of statements, among which cash flow statement is the most significant, is also very important. Cash flow statements are classified into three groups:
– cash from operating activities, which means cash inflow/outflow related to the core activity
– cash from investing activities refers to the cash inflow/outflow related to the purchase and sale of long-term assets and investments and
– cash from financing activities, which refers to the cash inflow/outflow related to the securities issued by the company or the flows that lead to capital change.
The best way to understand cash flows is to understand if and how transactions affect records by gaining insight into cash invoices i.e. if they are getting lower or higher. Apart from the legal obligation of the companies that are classified as small, medium-sized and large, cash flow is also often applied on a monthly and even weekly basis as a form of record keeping that provides information to management for the purpose of creating business transactions in a shorter period of time.
The cash from operating activities involves the changes related to outstanding balance of the company operating assets and liabilities that refer to:
– accounts receivable – supplies
– advance payments – other operating assets
– accounts payable – liabilities for wages
– liabilities for taxes and contributions – liabilities for interests
– liabilities for taxes – other short-term liabilities etc.
The cash from investing activities refers to the changes of long-term asset outstanding balances, namely
– long-term investments
– engineering construction
– means of transport
– furniture etc.
When it comes to the cash from financing activities, we take into consideration the changes related to outstanding balance of long-term liabilities and capital, primarily the following:
– liabilities related to bond emission
– liabilities related to long-term loans
– non-allocated profit
A part of the cash flow statement for the outstanding balance of the company operating assets and liabilities is prepared using the indirect method. This means that the cash invoice changes are determined indirectly in accordance with the changes of outstanding balance of accounts receivable and liabilities. A part of the cash flow statement related to the cash from investing and financing activities is defined by using the direct method – the reduction in the amount of cash, a dividend action and similar positive changes lead to the increase in cash flows, while negative changes lead to their reduction.
After determining cash from operating, investing and financing activities separately, the statement is created or, to be more precise, a net sum of cash flows is determined. This cash flow change indicates cumulative cash change for a specific period of time that was taken into consideration.