How to create a cash flow statement

One of the most important indicators of any company’s performance is a cash flow statement. It includes the flow of financial resources to the organization, i.e., the sources of funding for its activities and their allocation for internal and external needs.

This indicator provides almost complete information about the financial condition of the company to people who want to invest their money in it. However, in order to make management decisions correctly, you need to be able to analyze the cash flow report correctly. Therefore, it is worth taking the time to get the appropriate analytical skills, as well as knowledge in the field of financial and statistical reports.

The order of adding information to the report is as follows:

  • divide all payments and receipts into categories according to the report sections. If you can’t categorize the stream unambiguously, put the amount in section I;
  • in the context of each category, determine the amount of expenditure, revenue, and balance for the reporting period;
  • compare the reporting indicators (balances) at the end of the year with the same ones at the beginning of the current year, and then reflect the information in the report.

Gather all the data and documents

A cash flow statement template consists of the following main sections:

  • information about the main (operating) activities of the company;
  • information about investment activities;
  • information about financial activities. 

After you have studied the structure of the cash flow statement, you can start analyzing it directly.

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Balance sheet changes calculation

Now, take the incoming and outgoing balances of the financial position report and create a simple table with three columns in a cash flow statement excel worksheet. The table must include four columns. The last one is reflecting balance changes. 

Put balance sheet changes to the statement of cash flow

A very important stage of work is introducing the balance sheet changes to the cash flow statement. To do this, an accountant or a bookkeeper should enter the changes in the balance sheet items into respective cash flow statement items. This stage of work has crucial importance and requires much attention and concentration. 

Adjustment for non-cash items

Then, you should define non-cash segments in the process of a cash flow statement preparation. To do this, take a blank statement and make some adjustments there. Every separate action must be calculated in a separate column of the table. Just add a single number to a single caption and then carry out the deduction from another one in a cash flow statement example. 

Prepare movements in material balance sheet items

First, take the biggest material items in the balance sheet. Then, it is necessary to reconcile their movements between the balance’s opening and closure. Afterward, check that you have taken into account each movement in the statement of cash flows. 

Final checking

The formation of indicators is usually reduced to the calculation of the free cash flow indicator. As a result, you should receive the volume of free/net cash flow. Now, you know an answer to “What is a cash flow statement?”.

How to create a cash flow statement

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