How do i develop a cash flows statement?
Please help!
Developing a cash flows statement involves analyzing the inflows and outflows of cash within a business within a specific period. Here are the steps to create a cash flows statement:
1. Gather financial information: Collect the necessary financial data, such as income statements, balance sheets, and any other financial records for the period you want to assess.
2. Identify cash inflows: Determine the sources of cash coming into the business during the specified period. Common examples include sales revenue, loans received, and interest earned.
3. Identify cash outflows: Identify the various ways cash has been spent or used during the period. This includes payments to suppliers, employee wages, loan repayments, operating expenses, taxes paid, and any other cash payments made by the company.
4. Classify cash flows: Categorize the cash inflows and outflows into three main categories: operating activities, investing activities, and financing activities.
a. Operating activities: These involve the primary activities of the business, such as sales and expenses directly related to the production and delivery of goods or services.
b. Investing activities: These include the purchase or sale of long-term assets, such as property, plant, and equipment, as well as investments in securities or other businesses.
c. Financing activities: These relate to obtaining or repaying funds to finance the company's operations, such as loans taken or paid off, equity investments received or distributed, and any dividend payments.
5. Calculate net cash flow: Compute the net cash flow for each category by subtracting the total cash outflows from the total cash inflows. This will give you the cash position for each category.
6. Prepare the statement: Structure the cash flows statement using the three categories (operating, investing, and financing activities). Start with the net cash flow from operating activities, followed by investing activities, then financing activities. Finally, calculate the overall net change in cash for the period by summing up the net cash flows from all three categories.
7. Review and analyze: Once the cash flows statement is prepared, review and analyze the data to understand the sources and uses of cash within the business. Pay attention to any significant changes or trends that may impact the financial health of the company.
It is crucial to consult accounting professionals or refer to accounting standards (such as International Financial Reporting Standards or Generally Accepted Accounting Principles) for accurate guidance in preparing a cash flows statement, especially if you lack accounting expertise.