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What is a Cash Flow Statement?

A cash flow statement, also known as a statement of cash flows, is a financial statement that provides information about the cash inflows (receipts) and cash outflows (payments) of a business entity during a specific period. It presents the sources and uses of cash, allowing stakeholders to evaluate the company’s ability to generate cash and manage its cash flows effectively.

In South African accounting, the cash flow statement follows the International Financial Reporting Standards (IFRS) as adopted by the South African Institute of Chartered Accountants (SAICA) and is prepared using the direct or indirect method.

The structure of a cash flow statement typically includes the following key sections:

1. Cash Flows from Operating Activities: This section reports the cash flows generated or used in the normal course of the company’s core operations. It includes cash receipts from sales of goods or services, cash payments to suppliers and employees, and other operating cash flows such as interest received or paid and taxes paid.

2. Cash Flows from Investing Activities: This section reflects the cash flows related to the purchase or sale of long-term assets and investments. It includes cash inflows from the sale of property, plant, and equipment, proceeds from the sale of investments, and cash outflows for the acquisition of assets or investments.

3. Cash Flows from Financing Activities: This section reports the cash flows related to the company’s financing activities, including raising capital and repaying or distributing funds to investors or creditors. It includes cash inflows from issuing shares or borrowing, and cash outflows from the repayment of debt, payment of dividends, or repurchase of shares.

4. Net Increase (Decrease) in Cash and Cash Equivalents: This section presents the net change in cash and cash equivalents during the reporting period. It is calculated by summing the cash flows from operating, investing, and financing activities.

5. Cash and Cash Equivalents at the Beginning and End of the Period: This section provides the cash and cash equivalents balance at the beginning and end of the reporting period, indicating the company’s cash position at the start and end of the period.

The cash flow statement helps stakeholders assess the company’s ability to generate cash, meet its financial obligations, and support future investments. It provides insights into the company’s cash flow patterns, operating liquidity, and its capacity to fund operations, investments, and debt repayments.

The cash flow statement, along with the income statement and balance sheet, forms the set of financial statements that collectively provide a comprehensive view of a company’s financial performance, financial position, and cash flows.

References:

1. International Financial Reporting Standards (IFRS), International Accounting Standards Board (IASB), available at: https://www.ifrs.org/

2. SAICA website – https://www.saica.co.za/ (South African Institute of Chartered Accountants)

A cash flow statement, also known as a statement of cash flows, is a financial statement that provides information about the cash inflows (receipts) and cash outflows (payments) of a business entity during a specific period.

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