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 Uses of Cash |
SCFP Detailed Example Statement
Grande Corporation Uses of Cash |
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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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