Make your financial statements crystal clear with AgExpert Accounting - Part 2 Cash Flow Statement (CFS)

Published July 11,2022

In our March article, you learned about the Income and Expense Statement and the Balance Sheet. You also got some information on the Cash Flow Statement - one of the financial statements that companies need to produce. In this article, we will elaborate a bit more on the Cash Flow Statement (CFS for short).

What is a CFS anyway, and what purpose does it serve?

A CFS is one of the three financial statements that companies need to generate for their shareholders. It summarizes the movements of cash – and cash equivalents – entering and leaving a business.

The CFS allows your operation to stay on top of bills and when income will be received. It shows how well your business does in producing cash.

Components of a Cash Flow statement

The CFS is determined by looking at three sources or components – operating, financing and investing:

1. Cash flow from operating activities [AS1] 

Take the net income and add or subtract differences in revenue, expenses, and credit transactions. Non-cash items also get included or removed from net income, as well as assets and liabilities. For example, depreciation is an expense that does not involve any cash going out. Add depreciation expense into net income when calculating your operation’s operating cash flow.

The cash flow from operating activities will also reflect changes in accounts receivable, inventory and accounts payable.

2. Cash flow from investing activities

Whenever an asset or piece of equipment is purchased or if funds are invested, there’s cash that goes out. On the other hand, when those same items are sold, some cash comes into the operation. This section of the CFS will reflect these changes.

3. Cash flow from financing activities

This component shows the net flows of cash that are used to fund a business. It details cash flow from both debt and equity financing.  

Cash Flow balance

There are two methods used to calculate the cash flow balance – the direct and the indirect methods. These calculations can be daunting sometimes, but AgExpert can help.

AgExpert Accounting can be used to accurately project and monitor the cash flowing in and out of your operation.

You can revisit our blog article on managing your cash flow here to learn how AgExpert Accounting can save you time and make the process easy.