Cash flow report, one of the standard financial reports (Income statement, Balance sheet, Statement of changes in equity, and Cash flow), can be produced using the Direct method or Indirect method. Using Indirect method is simpler, but a Direct method Cash flow give a greater benefit to the reader, due to the nature of the presentation.
A typical Cash flow report made using Direct method is as follows:
1. Cash Flow from Operational Activities
Example: purchase / sale of fixed assets or investment in securities
3. Cash Flow from Financing Activities
Example: acquiring new loan, payment of interest, issuing obligation or stock
The cash flow from investing and financing activities are the same using both indirect and direct method. It is the cash flow from operational activities that are different.
The "easy" formulas, or shortcuts, to prepare the cash flow from operating activities are as follow:
Receipts from customers = Beginning balance of accounts receivable + Sales (include VAT) - Ending Balance of accounts receivable
Payment to suppliers = Beginning balance of accounts payable + purchases of inventory - Ending balance of accounts payable
Payment to employees = Wages/Salary-related expenses in the income statement
Payment for overhead and operational expenses = all other expenses in the income statement excluding the non-cash items (depreciation and amortization)
Payment for taxes = all cash outflow related to taxes (i.e. monthly VAT, income tax)
Other payments/receipts = for other items not related to any of the above and not related to investing and financing activities. Usually the movement of many other accounts in the balance sheet, such as accrued liabilities, prepayments, etc.
One more things to note: this cash flow is useful mainly for historical analysis, and for providing comparability with other companies' cash flow reports. For a cash flow report that is useful for day-to-day cash management and forecasting, there will be another format. I'll post about it later.
A typical Cash flow report made using Direct method is as follows:
1. Cash Flow from Operational Activities
- Receipts from customers
- Payments to suppliers
- Payments to employees
- Payments for overhead and operational expenses
- Payments for taxes
- Other payments/receipts
Example: purchase / sale of fixed assets or investment in securities
3. Cash Flow from Financing Activities
Example: acquiring new loan, payment of interest, issuing obligation or stock
The cash flow from investing and financing activities are the same using both indirect and direct method. It is the cash flow from operational activities that are different.
The "easy" formulas, or shortcuts, to prepare the cash flow from operating activities are as follow:
Receipts from customers = Beginning balance of accounts receivable + Sales (include VAT) - Ending Balance of accounts receivable
Payment to suppliers = Beginning balance of accounts payable + purchases of inventory - Ending balance of accounts payable
Payment to employees = Wages/Salary-related expenses in the income statement
Payment for overhead and operational expenses = all other expenses in the income statement excluding the non-cash items (depreciation and amortization)
Payment for taxes = all cash outflow related to taxes (i.e. monthly VAT, income tax)
Other payments/receipts = for other items not related to any of the above and not related to investing and financing activities. Usually the movement of many other accounts in the balance sheet, such as accrued liabilities, prepayments, etc.
One more things to note: this cash flow is useful mainly for historical analysis, and for providing comparability with other companies' cash flow reports. For a cash flow report that is useful for day-to-day cash management and forecasting, there will be another format. I'll post about it later.
.JPG)
Post a Comment