Chapter 4 - Cash Flow Reporting

Abstract

This chapter focuses on the importance of cash flow. In addition to an income statement and balance sheet, companies are required to include in their annual report a cash flow statement. This enables the users of accounts to assess the amounts, timing, and uncertainty of the organization's cash flows. Cash flows are presented under three main headings: from operating activities, from investing activities and from financing activities. In a full cash flow statement more detail would be provided to show the cash flow from individual activities within investing and within financing. These are the cash flows arising from the providers of capital. Items under this heading would include cash inflows from the sale of shares and the issue of loans. Cash outflows shown would be from the repayment of long-term loans and share capital, as well as from the payment of dividends to shareholders (if the latter have not already been shown as an operating cash flow). If interest paid has not already been shown as a part of the net cash flow from operating activities, then it will be included here as a financing cash flow.