The Statement of Cash Flows w/Interpretation

 

In this financial accounting video, a simple example of the operating activities section of the statement of cash flows is demonstrated, using the indirect method. In addition, a full statement of cash flows is demonstrated as well as the interpretation of the results of a statement of cash flows.

https://youtu.be/Dukvt5glA_A

The Statement of Cash Flows - Introduction

 

In this financial accounting video, the three main sections of the statement of cash flows are discussed with a detailed explanation of the operating activities section under the indirect method (i.e. Gains and Losses, Depreciation, Current Assets and Current Liabilities). In addition, multiple accounts are discussed and why and where in the statement of cash flows and in what section these items appear, is discussed.

https://youtu.be/-r7YuduFqjc

The Statement of Cash Flows: Operating Activities Example (with video)

The Statement of Cash Flows

There are four financial statements that are used by investors for decision making: income statements, statement of retained earnings, balance sheet and statement of cash flows. The latter of these can be used by management in decision making for the business. The statement of cash flows shows where a businesses cash is going (cash outflows/use of cash) and what activities are creating cash inflows (source of cash) for the business.

The statement of cash flows is unmistakably the most difficult of the financial statements to prepare. With three sections, operating activities, investing activities, and financing activities, students often find this statement a bit challenging to master. Students first have to assimilate to the idea of accrual accounting where revenues are recorded when earned and expenses are recorded when incurred. When students finally have this topic concurred they are asked to complete the statement of cash flows that only represents cash inflows and outflows. Therefore, instead of taking balances from the ledger accounts (t-accounts) and placing them on a financial statement (i.e. balance sheet, income statement) we have to look at the changes in the account balances (i.e. change from beginning of the period to the ending of the period).