The Cash Flow Statement is prepared to provide insights into the cash inflows and outflows of a business during a specific period. It is typically organized into three main sections: Operating Activities, Investing Activities, and Financing Activities. The sequence is as follows:

Operating Activities:

• This section starts with the net income from the income statement and adjusts for non-cash items and changes in working capital. It includes cash transactions related to the core operational activities of the business.
• Common items in this section include:
  • Receipts from customers
  • Payments to suppliers and employees
  • Interest and taxes paid
  • Other operating expenses and income

Investing Activities:

• This section focuses on cash transactions related to the purchase and sale of long-term assets. It provides insights into how the business is investing in its future.
• Common items in this section include:
  • Purchase and sale of property, plant, and equipment
  • Purchase and sale of investments (e.g., stocks, bonds)
  • Loans made to other entities or received from them

Financing Activities:

• This section involves cash transactions related to the financing of the business. It shows how the company raises and pays back capital.
• Common items in this section include:
  • Proceeds from issuing or repayment of debt (e.g., loans, bonds)
  • Proceeds from issuing or repurchase of equity (e.g., issuing or buying back shares)
  • Payment of dividends

Net Increase/Decrease in Cash:

• The net cash flows from each of the three sections are summarized to calculate the overall increase or decrease in cash during the period.

Cash and Cash Equivalents at the Beginning of the Period