Question

What is the cash flow statement? How is it linked to the balance sheet? Show an example.

Answer 1

The cash flow statement show that net cash flow for the company or the business and consists of three major parts, namely:

1. The cash flow from operating activities - This consists of the the net profit the business makes, and and sources of cash or use of cash from primary operating activities of the business

2. Cash flow from financing activities - This part includes any new debt or equity raised by the business, the dividends paid or received. The interest paid or received,etc which form a part of the financing for the firm

3. Cash flow from investing activities - This part includes investing cash flows from the investments the company makes. This can include purchase and sale of marketable securities, investment of other forms that the company ,may make.

The final net cash flow that results from the cash flow statement will appear the cash and cash equivalents part under the current assets on the asset side of the balance sheet. This is the manner in which the two are linked.

For example, if the net change in cash as per the cash flow statement is say $100,000. This will appear Cash and cash equivalents on the balance sheet. The cash on hand on the balance sheet will also show $100,000.