Project Management Accounting: Budgeting, Tracking, and Reporting Costs and Profitability, Second Edition

How to Calculate the Statement of Cash Flows for a Company

According to Professor John Halloran of the University of Notre Dame, the role of the statement of cash flows is to “provide information about magnitude and composition of a company's cash generating power.” A statement of cash flows is prepared from the beginning of a company's fiscal year to the date presented. It never covers a period longer than one year. The statement of cash flows is part of any complete financial statement presentation. Accordingly, the AICPA has guidelines on presentation and disclosure.

This chapter focuses on the layperson's construction of the statement of cash flows, not on the CPA's requirements. Nevertheless, the two approaches are not dramatically different. The statement of cash flows essentially tells the reader what the company did with its cash. The statement is divided into three sections: operating activities, investing activities, and financing activities.

The operating activities section includes the results of the income statement, non-cash deductions such as depreciation and amortization, and changes in current assets and current liabilities. The investing activities section includes the purchasing or selling of fixed and other assets. The financing activities section includes the changes in debt and equity. Exhibit 6.1 shows how to set up a statement of cash flows.

Exhibit 6.1 Statement of Cash Flows

OPERATING ACTIVITIES

Net Income (Loss)

Adjustments:

Depreciation and ...