1.2.3. Cash Flow Statement
Does the company have more or less cash at the end of the year than it did at the start of the year? Answering that question is the most basic purpose of the cash flow statement. As the name suggests, a cash flow statement—also known as a statement of cash flows or funds flow statement—depicts the flow of cash into and out of a company. Note that cash equivalents (defined above, in the balance sheet section) count as cash for purposes of the cash flow statement.
Cash flow statements may be prepared directly from the data, or indirectly from the other two financial statements. The exam generally focuses on indirectly prepared cash flow statements. An indirectly prepared cash flow statement incorporates elements from both the balance sheet and the income statement to show changes in cash flow between the beginning and end of the fiscal year. Typically, preparing the cash flow statement in this way will require:
• The completed income statement for the same period
• Two completed balance sheets, from the beginning and end of the period
Two balance sheets are needed because preparing the cash flow statement requires knowing how items such as accounts receivable changed during the period. Yo