Definition of Statement of Cash Flows
The statement of cash flows (SCF) is one of the required external financial statements. The SCF is commonly referred to as the cash flow statement.
The statement of cash flows presents the following information:
- The major cash inflows and cash outflows during the period of the income statement
- A reconciliation of the change in a company's cash and cash equivalents from the beginning of the accounting period to the end of the accounting period
- Supplementary information including the amount of income taxes paid, the amount of interest paid, and significant noncash investing and financing activities (such as issuing common stock in exchange for land)
The statement of cash flows is important because investors, lenders, financial analysts, and others are interested in an organization's cash flows, which are not available from the income statement because of the accrual basis of accounting.
Example of Statement of Cash Flows
You can see an example of an SCF by searching the internet for any corporation whose stock is publicly traded. You will see that the SCF shows the corporation's cash inflows without parentheses, and the cash outflows are shown in parentheses. The major cash flows are arranged in the financial statement as follows:
- Operating activities
- Investing activities
- Financing activities
