1. Cash Flow Statement
The following is an example of a Cash Flow Statement. Click on any line item label
and an explanation will be shown. This is a five year statement, however, your first
year's projections should show monthly figures, the second year, quarterly and years
three through five should show annual figures.
2011 2012 2013 2014 2015
Source of Funds
Beginning cash 0 -11,767 143,765 416,274 924,480
Sales/Svcs Income 1,366,986 2,662,548 3,416,123 4,565,616 5,981,959
Sale of Assets 0 0 0 0 0
Customer deposits 0 0 0 0 0
Loans 0 0 0 0 0
Contributed Capital 400,000 0 0 0 0
Available Cash $1,766,986 $2,650,781 $3,559,888 $4,981,890 $6,906,439
Use of Funds
Salaries 1,355,000 1,676,000 2,044,000 2,557,000 3,355,000
Other operating expenses 423,753 759,933 900,245 1,187,340 1,533,432
Loan payments 0 24,910 99,640 99,640 99,640
Capital Expenditures 0 0 0 0 0
Tax Payments 0 46173 99729 213430 277791
Total Cash Out $1,778,753 $2,507,016 $3,143,614 $4,057,410 $5,265,863
Net Cash Flow ($11,767) $143,765 $416,274 $924,480 $1,640,576
5. 12/2010 12/2009 12/2008 12/2007
All amounts in millions except per share amounts.
(TTM) (TTM) (TTM) (TTM)
Operating Activities
Net Income (Loss) 266.38 -28.34 70.21 54.81
Depreciation 45.15 26.19 12.93 4.67
Amortization 18.80 18.74 0.00 0.00
Amortization of Intangibles 0.00 0.00 0.00 0.00
Deferred Income Taxes -5.59 -3.17 -3.37 -0.76
Operating (Gains) Losses -34.30 3.67 -2.72 12.41
Extraordinary (Gains) Losses 0.00 0.00 0.00 0.00
(Increase) Decrease in Receivables -111.37 -17.68 -47.81 -0.80
(Increase) Decrease in Inventories -109.12 -13.68 -75.13 -0.36
(Increase) Decrease in Prepaid Expenses 51.30 46.26 -126.55 0.00
(Increase) Decrease in Other Current Assets -51.94 -3.39 -21.80 -249.82
(Increase) Decrease in Payables 99.49 36.60 15.81 1.23
(Increase) Decrease in Other Curr Liabs. 1.58 1.34 2.43 9.14
(Increase) Decrease in Other Working Capital 9.68 60.52 -65.23 0.00
Other Non-Cash Items 14.12 38.34 52.29 12.55
Net Cash from Continuing Operations 194.17 165.39 -188.94 -156.94
Net Cash from Discontinued Operations 0.00 0.00 0.00 0.00
Net Cash from Operating Activities 194.17 165.39 -188.94 -156.94
Investing Activities
Sale of Property, Plant, Equipment 1.13 0.04 0.01 0.00
Sale of Long Term Investments 0.00 0.00 55.11 0.00
Sale of Short Term Investments 35.08 9.67 318.52 0.00
Purchase of Property, Plant, Equipment -250.76 -89.77 -119.09 -57.75
Acquisitions 0.00 0.00 0.00 0.00
Purchase of Long Term Investments 0.00 0.00 0.00 0.00
Purchase of Short Term Investments 0.00 0.00 -316.02 -110.99
Other Investing Changes Net -40.22 -1.55 0.00 0.00
Cash from Disc. Investing Activities 0.00 0.00 0.00 0.00
Net Cash from Investing Activities -254.78 -81.61 -61.47 -168.74
Financing Activities
Issuance of Debt 242.80 105.46 468.93 34.23
Issuance of Capital Stock 1.26 2.47 2.77 474.99
Repayment of Debt -116.85 -143.49 -89.13 -27.38
Repurchase of Capital Stock 0.00 0.00 0.00 0.00
Payment of Cash Dividends 0.00 0.00 0.00 0.00
Other Financing Charges, Net 0.00 0.00 0.00 0.00
Cash from Disc. Financing Activities 0.00 0.00 0.00 0.00
Net Cash from Financing Activities 127.21 -35.56 382.57 481.83
Effect of Exchange Rate Changes -2.53 -0.70 -13.91 -12.50
6. Cash Flow Template 1
Business Plan Sample
Sources of Cash Flow Template
Statement For the Month Ended_________.
Sales
Loans
Equity Investment
Uses of Cash
Expenses to be Paid
Start Up Cost
Balance
(Monthly cash receipts minus
monthly accounts Payable)
Other Factors
Seasonal
Return (s)
Payment Terms
Cash Flow Template 2
Cash Flow Template
Statement For the Month Ended_________.
Estimated Actual
Cash On Hand
(Beginning of the Month)
Cash Receipts
Cash Sales
Collections From Credit Accounts
Loans
Other
Total Cash Receipts
Total Cash Available
Cash Paid Out
Gross Wages
Payroll Expenses
Outline Services
Office Supplies
Operating Supplies
7. Repairs and Maintenance
Advertising
Car
Delivery
Travel
Accounting
Legal
Rent
Telephone
Utilities
Insurance
Taxes
Interest
Other
Miscellaneous
Subtotal
Loan Principal Payment
Capital Purchase
Start Up Cost
Reserve and/or escrow
Owner's Withdrawals
Total Cash Paid Out
Cash Position
Essential Operating Data (non Cash
Flow information)
Sales Volume
Accounts Receivable (end of the
month)
Bad Dept (end or the month)
Inventory (end of the month)
Accounts Payable (end of the
month)
Total Cash Flow
Cash Flow Statement Example-Direct and Indirect
Method:
Unlike the major financial statements, cash flow statement is not prepared from the adjusted
trial balance. The information to prepare this statement usually comes from three sources:
1. Comparative balance sheets provide the amount of the changes in assets,
liabilities, and equities from the beginning to the end of the period.
2. Current income statement data help the reader determine the amount of cash
provided by or used by operations during the period.
3. Selected transaction data from the general ledger provide additional detailed
information needed to determine how cash was provided or used during the period
8. Preparing the statement of cash flows from the data sources above involves three major
steps:
Step 1. Determine the change in cash:
This procedure is straight forward because the difference between the beginning and the
ending cash balance can be easily computed from an examination of the comparative
balance sheet.
Step 2. Determine the net cash flow from operating activities:
This procedure is complex. It involves analyzing not only the current year's income statement
but also comparative balance sheets and selected transitions data.
Step 3. Determine net cash flows from investing and financing activities:
All other changes in the balance sheet accounts must be analyzed to determine their effects
on cash.
Cash Flow Statement Example:
A Comprehensive illustration
To illustrate a statement of cash flows we will use the first year of operations for Tax
Consultants Inc. The company started on January 1, 2003, when it issued 60,000 shares of
$1 par value common stock for $60,000 cash. The company rented its office space and
furniture and equipment, and it performed tax consulting services throughout the first year.
The comparative balance sheets at the beginning and at the end of the year 2003 appear as
follows.
Assets Change Increase/
Dec. 31, 2003 Jan. 1, 2003 Decrease
Cash $49,000 $-0- $49,000 increase
Accounts receivable $36,000 $-0- $36,000 increase
----------- ---------
Total $85,000 $-0-
====== =====
Liabilities and
Stockholder's Equity
Accounts payable $ 5,000 $-0- $ 5,000 increase
Common stock $60,000 $-0- $60,000 increase
Retained earnings $20,000 $-0- $20,000 increase
--------- -------
Total $85,000 $-0-
======= =====
The income statement and additional information for Tax Consultation Inc. are as follows.
Tax Consultants Inc.
Income Statement
For the year ended December 31, 2003
9. Revenue $125,000
Operating expenses $ 85,000
---------
Income before income taxes $ 40,000
Income tax expenses $ 6,000
----------
Net income $ 34,000
=======
Step 1: Determine the Change in Cash:
To prepare a statement of cash flows, the first step―determining the change in cash―is a
simple computation. The company has no cash on hand at the beginning of the year 2003,
but $49,000 at the end of 2003. Thus the change in cash for 2003 was an increase of $49,000
Step 2: Determine Net Cash Flow from Operating Activities:
A usual starting point in determining net cash flow from operating activities is to understand
why net income must be converted. Under generally accepted accounting principles, most
companies must use the accrual basis of accounting, requiring revenues be reported when
earned and that expenses be recorded when incurred. Net income may include credit sales
that have not been collected in cash and expenses incurred that may not have been paid in
cash. Thus, under the accrual basis of accounting, net income will not indicate the net cash
flow from operating activities.
To arrive at net cash flow from operating activities, it is necessary to report revenue and
expenses on cash basis. This is done by eliminating the effects of statement transactions that
did not result in a corresponding increase or decrease in cash.
The conversion of net income into net cash flow from operating activities may be done
through either a direct method or an indirect method as explained in the following discussion.
1.Direct Method:
(also called the income statement method) reports cash receipts and cash disbursements
from operating activities. The difference between these two amounts in the net cash flow from
operating activates. In other words, the direct method deducts from operating cash receipts
the operating cash disbursements. The direct method results in the presentation of a
condensed cash receipts and cash disbursements statement.
As directed from the accrual based income statement, Tax consultants Inc. reported revenues
of $125,000. However, because the company's accounts receivable increased during 2003 by
$36,000, only $89,000 ($125,000 − $36,000) in cash collected on these revenues. Similarly,
company reported operating expenses of $85,000, but accounts payable increased during the
period by $5,000. Assuming that payable related to operating expenses, cash operating
expenses were $80,000 ($85,000 − $5,000). Because no taxes payable exist at the end of the
year, the$6,000 income tax expense for 2003 must have been paid in cash during the year.
Then the computation of net cash flow from operating activities is as follows:
Cash collected from revenues $89,000
Cash payment for expenses $80,000
---------
Income before income taxes $ 9,000
Cash payments for income taxes $ 6,000
---------
Net cash provided by operating activities $ 3,000
10. ======
"Net cash provided by operating activities" is equivalent of cash-basis net income. ("Net cash
used by operating activities" would be equivalent to cash-basis net loss)
2 Indirect Method:
(or reconciliation method) starts with net income and converts it to net cash flow from
operating activities. In other words, the Indirect method adjusts net income for items that
affected reported net income but didn't affected cash. To compute net cash flows from
operating activities, noncash changes in the income statement are added back to net income,
and net cash credits are deducted. Explanations for the two adjustments to net income in this
example―namely, the accounts receivable and accounts payable―are as follows.
Increase in Accounts Receivable―Indirect Method:
When accounts receivable increase during the year, revenues on an accrual basis are higher
than on a cash basis because goods sold on account are reported as revenues. In other
words, operations for the period led to increased revenues, but not all of these revenues
resulted in an increase in cash. Some of the increase in revenues resulted in an increase in
accounts receivable. To convert net income to net cash flow from operating activities, the
increase of $36,000 in accounts payable must be deducted from net income.
Increase in Accounts Payable―Indirect Method:
When accounts payable increase during the period, expenses on an accrual basis are higher
than they are on a cash basis because expenses are incurred for which payment has not
taken place. To convert net income to net cash flow from operating activities, the increase of
$5,000 in accounts payable must be added back to net income.
As a result of the accounts receivable and accounts payable adjustments, net cash provided
by operating activities is determined to be $3,000 for the year 2003. This calculation is shown
as follows.
Net income $34,000
Adjustments to reconcile net income
to net cash provided by operating
activities: $(36,000)
Increase in accounts receivable $ 5,000 ($31,000)
Increase in accounts payable ----------
$ 3,000
Net cash provided by operating =======
activities
Note that net cash provided by operating activities is the same whether the direct or indirect
method is used.
Step 3: Determine Net Cash Flows from Investing and Financing Activities:
Once the net cash flows from operating activities is computed, the next step is to determine
whether any other changes in balance sheet accounts caused an increase or decrease in
cash.
For example, an examination of the remaining balance sheet accounts for Tax Consultants
Inc. shows that both common and retained earnings have increased. The common stock
increase of $60,000 resulted from the issuance of common stock for cash. The issuance of
common stock is a receipt of cash from a financing activity and is reported as such in the
statement of cash flows. The retained earnings increase of $20,000 is caused by two items:
11. 1. Net income of $34,000 increased retained earnings
2. Dividend declared of $4,000 decreased retained earnings.
Net income has been converted into net cash flows from operating activities, as explained
earlier. The additional data indicates that the dividend was paid. Thus, the dividend payment
on common stock is reported as cash outflow, classified as financing activity.
We are now ready to prepare the statement of cash flows. The statement starts with the
operating activities section. Either the direct or indirect method may be used to report net
cash flow from operating activates.
The statement of cash flows under indirect method for Tax Consultation Inc. is as follows.
Tax Consultants Inc.
cash flow statement-Indirect Method
For the year ended December 31, 2003
Cash Flows From Operating Activities:
Net income $34,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accounts receivable $(36,000)
Increase in accounts payable $ 5,000
---------------
Net cash provided by operating activities ($31,000)
-------------
Cash Flows From Financing Activities: $ 3,000
Issuance of common stock $60,000
Payment of cash dividend $(14,000)
----------
Net cash provided by financing activities
Net increase in cash $46,000
Cash, January 1, 2003 -----------
49,000
Cash, December 31, 2003 -0-
----------
$49,000
=======
As indicated, the $60,000 increase in common stock results in a cash inflow from a financing
activity. The payment of $14,000 in cash dividends is classified as a use of cash from a
financing activity. The $49,000 increase in cash reported in the statement of cash flows
agrees with the increase of $49,000 shown as the change in the cash account in the
comparative balance sheet.