Cash flow statement, financial accounting / Statement of changes in financial position

In financial accounting, the Cash flow statement is another name for the Statement of Changes in Financial Position (SCFP), also called the financial cash flow statement, is one of the four primary financial accounting reports published quarterly and annually by publicly held companies (companies that sell shares of stock to the public). The other three are the income statement, balance sheet, and statement of retained earnings. (However, see the encyclopedia entry for cash flow statement, business case for explanation of the cash flow statement in business case analysis).

As shown below, the SCFP serves as a bridge between these statements, taking many figures from the income statement, and then showing why the assets and liabilities sections on this period's balance sheet differ from the same sections on the previous period's balance sheet. Figures from the SCFP also impact dividend payments and retained earnings figures on the Statement of retained earnings. In this regard, for instance, the balance sheet is sometimes called the "Statement of financial position" while the SCFP is the "Statement of changes in financial position."

The SCFP statement, unlike the income statement, includes only real cash flow. If an asset is purchased with cash, for instance, the full transaction is counted here for the period when it occurs. The income statement, by contrast, reflects the asset purchase only through a number of depreciation expense entries over the depreciable life of the asset. In any case, the SCFP reports real cash flow changes during the period, structured around this equation:

Increase or decrease in cash = Sources of cash - Uses of cash

The SCFP, or cash flow statement, was the last of the four primary financial accounting statements to come into common usage and to become required (it was not required in the United States until 1988). As a relatively young document, there is still some controversy within and between international and national accounting standards boards regarding the handling of specific accounts on the SCFP. There is still even some controversy as to whether it is better called a cash flow statement, SCFP, or something else.

Example SCFP Statements
SCFP Simple (High Level) Example Statement
SCFP Detailed Example Statement
SCFP Interface With Other Financial Statements

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Example SCFP Statements

The example SCFP statements below are tied to the other three financial statement examples in this encyclopedia for the income statement, balance sheet, and statement of retained earnings. These interrelated statements together represent the central financial reporting system for a company.

A simple, high level example appears first to emphasize the very simple structure of this statement. A detailed example of the same statement follows, to show many of the typical line items possible in the statement.

SCFP Simple (High Level) Example Statement

  Grande Corporation
  Statement of Changes in Financial Position
  for the year ended 31 Dec 2011
       Figures in 1,000s      () indicate outflows

  Sources of Cash

  Net cash flow, operations and investments.  2,901
  Cash flow from other investing activities.    912
  Cash flow from financing activities.......      0
  Net cash flow from extraordinary item......   492
           Total cash inflows...................... 4,305

  Uses of Cash

  To pay dividends during the period......... (134)
  To repay debt..............................  (456)
  To purchase assets......................... (620)
  To purchase stock..........................     0
           Total cash outflows.................... (1,210)

          Increase (Decrease) in cash during period....  3,095

SCFP Detailed Example Statement

Grande Corporation
Statement of Changes in Financial Position
for the year ended 31 Dec 2011
           Figures in 1,000s      () indicate outflows

Sources of Cash

From operating activities
  Sales revenue................32,983
  Revenue from investments......   118
   Total rev from sales & inv.........33,101
     Less: Adjust for non cash rev....   (45)
       Cash inflow (outflow) from
       sales & investment revenues..........33,056
Expenses
   Cost of goods sold.........(22,043)
   Operating expenses ........ (7,810)
   Interest expense ..........   (511)
   Income tax expense.........   (958)
     Total expenses .................(31,322)
   Adjustments for non cash
   income statement expenses
     Deprec exp, mfr equip......  360
     Deprec exp, store equip....  120
     Deprec exp, computer sys...  179
     Amortization of trademarks.    0
     Est loss on doubtful accts. 137
     Net change in accruals,
       deferrals, & accts payable 353
        Total non cash expenses...... 1,167
          Net cash outflow for expenses....(30,155)
             Net cash inflow from
               operations and investments......... 2,901
From other investing activities
   Bank note, long term........................... 912
From financing activities
   Sale of stock..................................     0
From extraordinary items
   Sale of land ...........................    610
      Adj. for tax on extraordinary item...   (118)
        Net cash inflows, extraordinary item......   492

           Total cash inflows...........................4,305

Uses of Cash

To pay dividends during the period
    On preferred stock............................  (33)
    On common stock............................... (101)
To repay debt
    Increase bond sinking fund.................... (456)
To purchase assets
    Purchase computer systems..................... (620)
To purchase stock
    Reacquire this company's stock................    0
    Purchase stock, other company's stock......... 0

        Total cash outflows........................... 1,210

        Increase (Decrease) in cash during period..... 3,095

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SCFP Interface With Other Financial Statements

The values shown on the SCFP that represent accounts can be traced to the company's other financial statements, the income statement, the balance sheet, and statement or retained earnings.

Most of the revenue and expense items under "Sources of cash" come directly from the income statement, .e.g, Sales revenues, operating expenses, and the depreciation expense items. The Sources of Cash section of the SCFP in fact looks almost like a miniature income statement—but with an important difference.

Both the income statement and the SCFP Sources of Cash section start with Sales Revenues, and then subtract cost of goods sold, operating expenses, interest expense, and income tax expense. However, the SCFP adds back as positive cash inflows, any depreciation expenses that were part of operating expenses or cost of goods sold.

Depreciation expenses are non cash expenses—an accounting convention for adjusting reported income on the income statement, but not real cash flow. Hence, the SCFP adds them back in order to get Total cash inflows for the period.
On the other hand, if the company has used cash during the period to purchase assets or stock shares, the SCFP entries help explain the difference between last period's asset accounts and this period's asset accounts on the balance sheet.
If the company has used cash this period to repay debt, the SCFP entries under Uses of cash explain the difference between last period's liability accounts and this periods liability accounts on the balance sheet.
If the company has used profits to make cash payments as dividends to share holders, the SCFP helps explain where the dividend payments on the Statement of retained earnings come from.

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