Cash flow statement: how to prepare it correctly?

Contents:

• Why do you need a cash flow statement?
• A complete guide to the cash flow statement template
• How to correctly complete the operating activities section of the cash flow statement (CFS)
• How to correctly complete the investing activities section of the CFS
• How to correctly complete the financial activities section and the CFS result
• Cash flow statement summary
• How to deepen your knowledge of financial statements

Why Do You Need a Cash Flow Statement?

The cash flow statement (CFS) is an important financial document that records all cash receipts and payments for a given period. This report also shows cash balances at the beginning and end of the period, which allows for a more in-depth analysis of the company's financial condition. The CFS assists in liquidity management, budget planning, and financial performance evaluation, making it an indispensable tool for analysts and executives. Proper preparation and analysis of the cash flow statement contributes to more effective financial management and informed business decision-making.

The financial performance statement (Form No. 2) records all income and expenses as they arise. However, this accounting method can cause discrepancies between accounting data and actual cash flows. This discrepancy can complicate the analysis of a company's financial position and budget planning, as actual cash may differ from the accounting figures. It is important to consider these aspects to more accurately assess the financial strength and liquidity of a company.

If a company sells goods on a deferred payment basis, the profit will be recorded in the income statement. However, the actual cash will only be credited to the account once payment is received. Therefore, the actual cash receipt will only be reflected in the cash flow statement (CFS) once the transaction is complete. This highlights the importance of accounting for the time lag between revenue recognition and actual cash receipts, which is critical to analyzing a company's financial position.

When analyzing discrepancies between operating cash flow (CFS) and the income statement, it is crucial to determine the reasons for these differences. For example, if a profit is recorded but there is no cash, an in-depth investigation of the data is required to identify the factors influencing this situation. This may include examining changes in working capital, assessing accounts receivable, and analyzing expenses that may not be reflected in cash flow. A thorough analysis of these aspects will help provide a more complete understanding of the company's financial position and identify potential risks.

A cash flow statement (CFSS) is required to be submitted by all companies, except those using a simplified accounting system. This report analyzes the company's financial flows and is an important tool for assessing its financial position. The deadline for filing the report is March 31 of the year following the reporting year. Timely submission of the CFSS helps avoid fines and misunderstandings with tax authorities.

Since 2019, all organizations are required to submit financial statements electronically. This document presents the CFSS form, which is necessary for the proper accounting and analysis of cash flows. Effective use of this form ensures the transparency of financial transactions and compliance with legal requirements.

A Complete Guide to the Cash Flow Statement Form

The cash flow statement (CFS) is an important financial document that reflects a company's cash flows. This report is a table with key indicators, with the main categories of income and expenses listed at the top. The CFS allows you to analyze a company's liquidity, assess its financial stability, and manage cash flows. Proper preparation of a cash flow statement helps to identify financial problems and make informed decisions to address them.

• reporting period and date of preparation;
• information about the company - OKPO, INN, OKVED, OKOPF, OKFS codes;
• units of measurement - since 2019, all indicators are recorded exclusively in thousands of rubles.

The report is structured into three main sections, which represent the various areas of the company's activities. These sections allow you to analyze the performance results in detail and identify key aspects affecting the success of the business. Each section focuses on specific elements of the activity, which contributes to a deeper understanding of the big picture and the company's performance.

• Cash flows from operating activities. These flows are related to the company's core business and include profit or loss from the sale of goods and services. This section is especially important for users of the report, as it shows the company's financial result.
• Cash flows from investing activities. This segment includes transactions for the purchase and sale of fixed assets, securities, as well as dividend payments and loan issuance.
• Cash flows from financing activities. This reflects flows related to the receipt and repayment of loans, credits, as well as interest and dividend payments, and the issuance of securities.

We present a cash flow statement form, which contains the necessary lines for completion. This report is an important tool for analyzing your company's financial flows. It allows you to track income and expenses, which contributes to more effective financial management. Completing all lines of the form will help you get a complete picture of the financial condition of your business.

The cash flow statement (CFSS), like the income statement, contains information for the current and previous periods. This provides an opportunity to analyze changes in cash flows and identify the factors influencing them. CFSS data is key to understanding the financial position of a company and helps in making informed management decisions. By analyzing these reports, you can better assess the efficiency of operating activities and the financial stability of the business.

In the following sections, we will consider in detail how to correctly complete the cash flow statement, based on specific examples. This will allow you to better understand the structure of the report and master the key points associated with its preparation.

How to Correctly Complete the Operating Activities Section of the Cash Flow Statement (CFSS)

Completing the operating activities section of the cash flow statement (CFSS) is a critical step in accounting for a company's cash flows. This section reflects the cash flows arising from the company's core activities and can be compiled in two main ways: direct and indirect. The direct method provides detailed information on receipts and payments, while the indirect method starts with net profit and adjusts it for changes in working capital. Correctly completing this section allows you to analyze the financial stability of the company and its ability to generate cash from operating activities.

When using the direct method, an organization records the total amount of all receipts and payments related to operating activities for a given period. However, this approach does not provide the ability to detail the specific items under which these receipts and expenses were incurred. This can complicate the analysis of cash flows and budget planning, since the lack of detail makes it difficult to identify sources of revenue and cost items. As a result, organizations may face difficulties in optimizing their financial operations and improving the efficiency of resource use.

The indirect method of cash flow analysis offers more detailed information on payments and receipts. With this approach, the company structures its financial data by various items, which makes the report more understandable and accessible to both internal and external users. This method is widely used in organizations, as it allows for effective tracking of financial results and making informed decisions based on the analysis.

When using the indirect calculation method, the profit before tax indicator taken from the financial performance report is used. This method allows for a more effective analysis of the company's financial performance, ensuring accuracy and transparency in assessing profitability. Using profit before tax as a basis for calculations contributes to a better understanding of the financial condition of the enterprise and helps in making informed decisions.

After this, the indicated amount is adjusted for non-cash and non-operating income and expenses. Such adjustments include depreciation and other financial transactions that do not affect actual cash flows.

Let's consider the process of filling out the operating activities section using the example of the KAMAZ group of companies' report. In this report, prepared using the indirect method, the first line indicates the profit or loss before tax, obtained from the financial performance report. It is important to focus on the accuracy of the data, as it serves as the basis for analyzing the company's financial stability and assessing its operational efficiency. Proper presentation of information in the operating activities section allows investors and analysts to more accurately assess the financial condition of the company and make informed decisions.

Profit is adjusted for non-cash and non-operating income and expenses. For example, losses from writing off intangible assets are a non-cash expense that is added to profit before tax, since it has already been taken into account in previous calculations. This is important for accurately determining the taxable base and analyzing the company's financial results. Profit adjustments allow for a more objective assessment of the financial condition of the business and its real efficiency.

This report presents the results of financial transactions in which financial income is subtracted and financial expenses are added. This method of analysis provides an opportunity to delve deeper into the remaining lines of the financial performance statement, as well as take into account all non-operating and non-cash income and expenses. This approach provides a more complete understanding of the company's financial condition and facilitates more accurate planning of future financial strategies.

The results are displayed in the line item "Cash flows from operating activities before changes in working capital." After this, it's necessary to clean up the resulting value, excluding the results of transactions for which settlements have not yet been completed. This will provide a more accurate picture of the company's actual cash flows and assess its financial stability.

If the report indicates that a sale has occurred but the cash has not yet been received, then such accounts receivable are not included in the cash flow statement. This is important for an accurate assessment of the company's financial position and a proper analysis of its liquidity. Excluding accounts receivable from the report avoids distortions in cash figures and improves the quality of financial reporting.

The key result of the analysis is the line item "Cash flows from operating activities." Actual income taxes paid for the reporting period are subtracted from this amount. This allows us to calculate the final indicator: net cash flow from operating activities. This metric is an important indicator of a company's financial health, as it reflects the actual movement of cash generated from core activities. Net cash flow helps investors and analysts evaluate a business's performance and its ability to generate profit.

Comparing net cash flow with the income statement figures allows us to identify discrepancies and conduct a more in-depth analysis of the company's financial condition. This approach helps determine how effectively a company manages its cash flow and how well its financial results correspond to actual cash flow movements. This is a key aspect for investors and analysts seeking to assess a company's financial stability and liquidity.

Correctly completing the operating activities section of the cash flow statement plays a crucial role in financial analysis. Understanding the differences between the direct and indirect methods allows you to more effectively manage your company's cash flows. The direct method provides a clear view of cash receipts and outflows, while the indirect method focuses on adjustments to net income, which can provide a deeper understanding of financial position. Understanding these methods will help you optimize financial management and increase reporting transparency, which in turn facilitates more informed business decisions.

How to Correctly Complete the Investing Activities Section of the Cash Flow Statement

The investing activities section of the cash flow statement (CFS) plays a key role in analyzing a company's financial position. This section details all cash flows associated with the acquisition and disposal of assets. Investing activities include both long-term and short-term investments, allowing investors and analysts to gain a complete understanding of financial risks and opportunities. A thorough analysis of this data helps to identify trends in business development and assess its ability to generate future cash flows.

• cash flows from the purchase and sale of fixed assets, intangible and other non-current assets;
• cash flows from transactions with securities;
• cash flows from interest and dividends;
• cash flows from lending and loan repayments.

An example of successful investment activity is presented using the example of the KAMAZ group of companies, which demonstrates the practical application of investment principles in real-world conditions. An analysis of this company's activities shows how effective strategies and competent asset management contribute to business growth and development.

When completing this section, it is important to focus on cash flows associated with transactions with fixed assets. In addition, companies can invest in intangible assets, acquire shares of other companies, provide loans, and receive dividends from their investments. All of these transactions are key to a comprehensive analysis of investment activities and must be properly reflected in the financial statements. Properly reflecting these transactions allows you to evaluate the effectiveness of investments and the financial condition of the company, which is important for stakeholders.

The final data in this section is the line "Net cash flows used in investing activities." This information allows you to evaluate what funds were used for the development of the company and its investment projects. Net cash flow analysis helps understand the financial stability and effectiveness of an organization's investment decisions.

It should be emphasized that this section most often shows a negative result, which indicates that the company is actively reinvesting funds in its assets. This is an important indicator that allows you to analyze which assets were invested in. A negative result may indicate a growth and development strategy, which may be attractive to investors interested in the long term. Reinvestment analysis provides a better understanding of the company's financial position and its future plans.

How to correctly complete the financial activities section and the cash flow statement result

The financial activities section of the cash flow statement (CFSS) is an important component that helps assess the financial condition of a company. This section documents the main transactions related to raising and disbursing financial resources, which allows for a better understanding of the liquidity and financial stability of the organization. By analyzing this section, investors and creditors can obtain information about the company's ability to generate cash flows and effectively manage its financial obligations. The cash flow statement serves as a reliable tool for assessing the financial health of a business and its potential for further growth.

• receipts and repayments of loans and borrowings;
• payments of dividends to shareholders and proceeds from them;
• interest expenses, if they were not taken into account in the operating activities section.

The financial activities section of the cash flow statement (CFS) of the KAMAZ group of companies is an important aspect of the analysis of the financial condition of the enterprise. It includes information on cash receipts and payments, which allows us to assess the liquidity and financial stability of the company. This section helps investors and analysts understand how effectively the group manages its financial resources, as well as identify the main sources of income and areas of expenditure. Analysis of the financial activities of the KAMAZ Group in the cash flow statement makes it possible to predict the future financial position of the company and make informed investment decisions.

This section presents all financial receipts and payments related to external financing, including loans and borrowings. If the company issues bonds, the funds received from this are also subject to accounting. This ensures a complete and transparent view of the financial flows associated with external sources of capital. Correct accounting of such transactions is important for analyzing the financial stability of the company and its ability to meet obligations to creditors and investors.

During the reporting period, if there were financial transactions with the company's owner, such as the receipt of funds or the payment of dividends, these transactions should be reflected in the financial activities section. This is important for accurate accounting and analysis of the company's financial condition, as well as for compliance with reporting requirements.

After completing all sections of the cash flow statement (CFS), it is necessary to calculate the final indicator - the line "Net increase in cash and cash equivalents". This indicator represents the sum of cash flows received from the operating, investing, and financing activities of the enterprise. Correct calculation of this value allows us to assess the overall liquidity of the business and its ability to generate cash, which is a key aspect for analyzing the company's financial position.

If part of the financial receipts are received in foreign currency, exchange rate differences must be taken into account. These differences should be reflected separately in the reporting to ensure the transparency and accuracy of financial data. Correct interpretation of exchange rate fluctuations will help in more effective management of financial flows and minimize the risks associated with changes in exchange rates.

The line "Cash and cash equivalents at the beginning of the year" reflects the amount of financial funds available to the company at the beginning of the reporting period. This indicator is formed based on the data from the last line of the cash flow statement (CFS) for the end of the previous period. Correct understanding of this value is important for analyzing the liquidity and financial position of the company, as it serves as a starting point for assessing changes in cash flows during the year.

The final result of the cash flow statement is the amount of cash at the end of the reporting period. This indicator is also reflected in the balance sheet under the section "Cash and Cash Equivalents". Proper understanding and interpretation of this data is important for assessing the financial condition of a company and its liquidity. Cash flow analysis allows you to identify financial flows, which contributes to more effective resource management and planning of future investments.

Cash Flow Statement Summary

• The Cash Flow Statement (CFS), known as Form No. 4, is an important element of mandatory financial reporting. It details all cash receipts and expenses for a given period, and shows the cash balance at the beginning and end of that period.
• All companies are required to prepare this report, except those using simplified accounting. The deadline for submitting the cash flow statement to the tax authorities is no later than March 31 of the year following the reporting year.
• The structure of the cash flow statement includes three key sections: cash flows from operating activities, investing activities, and financing activities. The final part of the statement indicates how much cash remains at the end of the reporting period.

How to Deepen Your Knowledge of Financial Statements

• The cash flow statement is a key form of financial statements, along with other important documents such as the balance sheet and the income statement. Check out Skillbox Media materials for more detailed information.
• If you are just starting out in accounting, we recommend reading our article "Accounting: Basics, Meaning, and Organization." In it, we describe the basic principles and practices in detail.
• To learn how to maintain accounting records, work with the 1C system, and prepare reports, consider the Skillbox course "Accountant Profession." This is an excellent opportunity to gain practical knowledge from experienced specialists.
• Skillbox also offers the course "Financial Manager Profession." It is suitable for those who want to learn how to analyze a business's financial condition and evaluate investment projects.

Additional Skillbox Media resources for entrepreneurs and managers offer numerous opportunities for professional development and business development. These resources include online courses, webinars, and training materials that will help you master relevant skills and improve your management competencies. Skillbox Media actively shares knowledge about modern business trends, enabling managers to make more informed decisions. Using Skillbox Media resources, you can optimize company processes, increase team efficiency, and successfully adapt to market changes. Pay attention to the available materials to stay competitive in your field.

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