The cash flow statement also referred to as the statement of cash flows summarizes the significant reasons for the change in a company’s cash and cash equivalents during an accounting period or a given period of time. Simply put, the cash flow statement presents the cash receipts and cash payments of a company during an accounting period.
The cash flow statement is a mandatory part of a company’s financial statements and complements the profit and loss statement and balance sheet. The items are presented in the following categories: cash, cash equivalents, cash flows, operating activities, investing activities, financing activities, and supplemental information.
- Cash: comprises cash on hand and demand deposits.
- Cash equivalents: include short-term, highly liquid investments that are readily convertible to cash.
- Cash flows: includes inflows and outflows of cash and cash equivalents.
- Operating activities: include the principal revenue-producing activities of the entity and other activities that are not investing or financing activities.
- Investing activities: include the acquisition and disposal of long-term assets and other investments not included in cash equivalents.
- Financing activities: include the activities that result in changes in the size and composition of the contributed equity and borrowings of a company.