Cash flow statement template

Perhaps you need more than 25 mins to read the cash flow statement template and master it.

A cash flow statement is often prepared from the balance sheet and income statement of an enterprise, opening with a reconciliation between reported profit and operating cash flow.

The cash flow statement should be presented using standard headings. The standard headings are to ensure that cash flows are reported in a form that highlights the significant components of cash flow and facilitates comparison of the cash flow performance of different businesses.

To determine the net cash flow from operating activities, there are two methods to show cash flow statement template: indirect and direct methods.

The formula, format and template of cash flow statement: direct method

The formula, format and template of cash flow statement: indirect method

As known, the profit is basic on the accounting concepts of accruals, the cash flow is on cash basis. Profit represents an increase in net assets, which can be in cash or may be ‘tied up’ in other assets. For example:

• non-current assets may have been purchased
• there may be an increased amount of receivable
• there may be increased investment in inventory
• the liabilities of the business may have decreased, i.e. more cash has been spent this year in paying off suppliers more quickly than was the case last year.

We can reconcile profit to cash in an accounting period by taking into account these and other factors.

The direct method records the gross trading cash flows, the indirect method starts with profit, not cash, and adjusts profit for the non-cash expense of depreciation and for the movements in working capital. The information for the direct method could be found in the accounting records or derived from the other financial statements. The information for the indirect method is found in the other financial statements.

Especially, under indirect method, the standard headings shown in the statement are: operating activities, investing activities, financing activities. Figures for the cash flow statement will be derived either from the accounting records or from the other financial accounting statements: the balance sheet for the current year and the previous period, and the income statement for the period.

A single example of calculation using the indirect method

The summarised balance sheet of Aspring, a limited company, at 31 December 20X8 and 20X9 were as follows:

No non-current assets have been sold during the period under review. Depreciation provided for the year amounted to $2,000. There is non interest paid, dividends paid or taxation paid.

Now, we’ll prepare the cash flow statement for the year ended 31 December 20X9.

The analysis of cash flow statement: indirect method

Operating activities:

• Profit before tax: you can calculate it from the account “Reserves” (21,000 – 17,000 = 4,000).
• Depreciation: you can calculate it from the account “Depreciation” (10,000 – 8,000 = 2,000). Depreciation is a book write-off capital expenditure, therefore, it represents an addition to reported profit in deriving cash inflow.
• Increase in inventories: you can calculate it from the account “Inventory” (23,500 – 20,000 = 3,500). Inventory at the balance sheet date represents a purchase which has not actually been charged against current profit. However, as cash was spent on its purchase or a payable incurred, it does represent an actual or potential cash outflow.
• Increase in payables: you can calculate it from the account “Payables” (6,000 – 5,000 = 1,000). A purchase represents the incurring of expenditure and a charge or potential charge to the income statement. It does not represent a cash outflow until paid.

Investing activities:

• Payments to acquire non-current assets: you can calculate it from the account “Plant and machinery, at cost” (16,500 – 15,000 = 1,500). Cash paid for property, plant and equipment and other non-current assets represents a cash outflow.

The example shows the important information that can be directly given by a cash flow statement. Despite making a profit of $4,000 in the period, the business has suffered a $3,000 reduction in cash. This is largely due to the amount of profit tied up in increased working capital (inventory, receivables less payables).

Here is a comprehensive example shows both the indirect and direct methods of calculating operating cash flow. If you spend more than 15 – 20 mins to read this example , you will understand and master the formula, format and template of cash flow statements: indirect and direct methods.

The draft financial statements of A for the year ended 31 December 20X9 are as follows:

Note: Cash and cash equivalents are made up as follows:

The following additional information is also available.

• Interest expense was $400 of which $170 was paid during the period. $100 relating to interest expense of the prior period was also paid during the period. $200 of interest was received during the period.
• Dividends paid were $1,200.
• The liability for tax at the beginning and end of the period was $1,000 and $400 repectively. During the period, a further $20 tax was provided for.Withholding tax on dividend received amounted to $100, thus leading to the total tax expense of $20 + $100 = $120.
• During the period, the group acquired property, plant and equipment with an aggregate cost of $1,900 of which $900 was acquired by means of finance leases. Cash payments of $1,000 were made to purchase property, plant and equipment.
• $90 of capital repayment was paid under the finance leases.
• Plant with an orginal cost of $80 and accumulated depreciation of $60 was sold for $20.
• Accounts receivables as at the end of 20X9 include $100 of interest receivable.
• $250 was raised from the issue of share capital and a further $450 was raised from long-term borrowings.

Required

1. Prepare a cash flow statement for the year ended 31 December 20X9 using the indirect method and following the illustrative format (starting the cash flow statement with the profit before tax).
2. Show the calculation of operating cash flow using the direct method.

Approach to solution

Figures for the cash flow statement are derived from the differences between the opening and closing balance sheet figures, using information in the notes and in the income statement to make necessary calculations. One approach to developing the answer is to adopt a standard procedure. Here is a suggested procedure for the indirect method.

Step1

Set up the statement in outline (main headings only). Leave plenty of space to insert detail. A whole page will be needed.

Step2

Study the additional information and mark with a cross those items affecting balance sheet amounts.

Step3

Begin the cash flow statement by using the income statement to work down to operating profit before working capital changes.

Step4

Proceed line by through the balance sheets. If an item is not marked with a cross, the difference may be entered direct to the statement, if it is marked, a working is required. Use working ledger accounts to calculate missing figure. Insert the opening and closing balances from the balance sheets into the working accounts, then add information from the notes to complete the ledger account. Balancing figures on the working accounts are then transferred to the cash flow statement.

Solution

Cash flow statement for the year ended 31 December 20X9: indirect method.

Analysis of cash and equivalents

Workings:

• Net profit before tax: 3,350

You can find it in the income statement.

• Depreciation: 450

You can find it in the income statement for this period. Added back to profit because it’s a non-cash expense.

• Investment income: (500)

You can find it in the income statement for this period. Deducted because this income is not belong to operating activities.

• Interest expense: 400

You can find it in the income statement for this period. Added back because it’s not part of cash generated from operations (the interest actually paid is not belong to operating activities).

• Increase in trade receivables: (600)



Deducted because this is part of the profit not yet realised into cash but tied up in receivables

• Decrease in inventories: 950

You can calculate it from the account “Inventory” (1,950 – 1,000 = 950). Added on because the decrease in inventories liberates extra cash.

• Decrease in trade payables: (1,640)

You can calculate it from the account “Trade payables” (1,890 – 250 = 1,640). Deducted because the reduction in payables must reduce cash.

• Interest paid: (270)



These are the amounts actually paid in the year.

• Income taxes paid: (720)



These are the amounts actually paid in the year.

• Purchases of property, plant and equipment: 1,000



Cash paid for property, plant and equipment and other non-current assets.

• Proceeds of sale of equipment: 20




Cash received on the sale of property, plant and equipment and other non-current assets.

• Interest reveived: 200
• Dividends received: 200



Additional information: $200 of interest was received during the period. Received on investments.

• Proceeds from issue of shares: 250

You can calculate it from the account “Share capital” (1,500 – 1,250 = 250). It’s an inflow of cash.

• Proceeds from long-term borrowings: 450



It’s an inflow of cash.

• Payment of finance lease liabilities: (90)

$90 of capital repayment was paid under the finance leases. It’s an outflow of cash.

• Dividends paid: (1,200)



It’s an outflow of cash.

Opening cash flow: direct method.

Workings:

• Cash receipts from customers



• Cash paid to suppliers and emplyees

Related posts:

1. The direct and indirect method of cash flow
2. Cash flow from operating activities
3. Operating cash flow
4. Advantages of the cash flow statement
5. Limitations of the cash flow statement