Statistical Symbols and Definitions

Statement of Cash Flows

The statement of cash flows consists of three sections. The operating activities, investing activities, and the financing activities are combined to complete the statement of cash flows. The statement of cash flows summarizes the cash flows for an organization. This important financial statement shows where a company received cash during the year and how the cash was used. The statement of cash flows reports the changes in cash over a period of time and more importantly explains those changes.

The operating activities concern the purchase and sale of a product. The investing activities involve the acquisition and sale of long-term or noncurrent assets. This would include long-term investments, property, plant, equipment, and intangible assets. The financing activities section includes information concerning the issuance, repayment, or retirement of long-term liabilities, capital stock and payment of dividends (Kieso, Weygandt, & Warfield, 2010). Each of these sections allows users to gain an understanding of how an organization uses their cash.

The cash flows from operating activities are normally presented first, followed by the cash flows of investing activities, and financing activities. The total of net cash flow from these activities is the net increase or decrease in cash for the period. The balance of cash at the beginning of the period is added to the decrease or increase in cash (Weygandt, Kimmel & Kieso, 2008). The result is the cash balance for the end of the period. The ending balance of cash on the statement of cash flows should equal the cash reported on the balance sheet.

The cash flows from operating activities can observe two alternative methods for reporting cash flows. The direct method reports the sources of operating cash and the uses of operating cash. Cash received from customers is a major source of operating cash. Major uses of operating

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