A cash flow statement is a financial document that provides insight into a company's inflow and outflow of cash during a specific period. This information is essential for companies to manage their finances effectively and make informed business decisions. In this guide, we will go over the steps to prepare a cash flow statement and the information you need to include.

1: Gather Financial Information

The first step in preparing a cash flow statement is to gather all the financial information that you need. This includes cash and cash equivalents, accounts receivable, accounts payable, and any other information that relates to the company's cash inflows and outflows. You should also gather information on any investments, loans, or other financing activities that have taken place during the period in question.

2: Determine the Time Period

Next, you need to determine the time period that you want to cover in your cash flow statement. This can be a month, quarter, or year, depending on your needs and the frequency of your financial reporting. It is important to be consistent with the time period you choose, so that you can easily compare cash flow statements from one period to the next.

3: Calculate Cash Inflows

Once you have gathered all the necessary information, you can begin calculating the cash inflows for the period in question. Cash inflows are any sources of cash that increase the company's cash balance, such as sales, loans, or investments. When calculating cash inflows, it is important to exclude any non-cash transactions, such as the recognition of depreciation expenses or amortization of intangible assets.

4: Calculate Cash Outflows

The next step is to calculate the cash outflows for the period in question. Cash outflows are any uses of cash that decrease the company's cash balance, such as expenses, repayments of loans or investments, or dividends paid to shareholders. When calculating cash outflows, it is important to exclude any non-cash transactions, such as the recognition of gains or losses on the sale of assets.

5: Prepare the Cash Flow Statement

Once you have calculated the cash inflows and outflows, you can begin preparing the cash flow statement. The statement should be divided into three sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

Cash Flows from Operating Activities: This section includes the cash inflows and outflows that are directly related to the company's core operations, such as sales, purchases, and expenses.

Cash Flows from Investing Activities: This section includes the cash inflows and outflows related to the company's investments, such as the purchase or sale of long-term assets or investments in other companies.

Cash Flows from Financing Activities: This section includes the cash inflows and outflows related to the company's financing activities, such as loans and repayments, the issuance or repurchase of shares, and dividends paid to shareholders.

6: Review and Finalize the Cash Flow Statement

Once you have prepared the cash flow statement, it is important to review it for accuracy and completeness. This includes checking for any errors in calculations, ensuring that all necessary information has been included, and verifying that the cash flow statement is in line with the company's financial statements and other financial reports.

In conclusion, preparing a cash flow statement is an important part of managing a company's finances effectively. By following these steps, you can ensure that you have all the necessary information to prepare a comprehensive and accurate cash flow statement.