The last financial statement, the Cash Flow Statement is prepared to report all the changes in cash that occurred over a period of time usually a month or year.
The major sections of the statement are the heading, a section for reporting the increases in cash (resources provided by), a section for reporting the decreases in cash (resources applied to), and a summary of the change in cash (increase/decrease) for the period.
If the business was in operation in the previous year, the prior year balance sheet along with the current year balance sheet and current year income statement is needed in order to prepare the statement. Additional analysis of some of the accounts may also be needed.
Our example assumes that ABC Mowing’s prior year balance sheet is as follows:
|As Of December 31,xxxx Prior Year|
|Total Liabilities & Equity||$,9500|
Using the above prior year balance sheet along with the current year balance sheet and income statement we prepared the following Statement Of Changes in Cash:
Summary of how to prepare the statement:
The first step is determining the cash provided or used by operations and begins with the operating income for the period.
Adjustments are made to the income for revenue or expenses items that did not provide or use cash.
Additional adjustments are made for all current and noncurrent accounts and are recorded as addition or subtractions depending upon their effect on cash based on their beginning of the year and end of the year balances.
|Cash Flow Statement|
|For the Period Ending December 31,xxxx|
|Sources Of Cash|
|Financing from bank loan||$10,000|
|Uses Of Cash|
|Income from Operations||820|
|Increase in Accounts Payable||60||880|
|Increase in Supplies Inventory||100|
|Increase in Accounts Receivable||1,000||1,100|
|Cash Used by Operations||220|
|Payment of Owner's Draws||1,100|
|Purchase of Equipment||10,000|
|Decrease in Cash||$1,320|
|Change in Cash Balances|
|Cash Balances December 31,xxxx (Current Year)||$5,080|
|Cash Balances December 31,xxxx (Prior Year)||6,400|
|Decrease In Cash||$1,320|
Additional facts and information about the business
is disclosed in the Notes to the Financial Statements