Mada za sehemu hiiPrepare a statement of cash flowsMada 2
- Describe types of Cash Flows
- Prepare a basic Statement of Cash Flows
A Statement of Cash Flows shows how cash money moved in and out of a business during a specific period. It helps owners and managers understand whether the business generated enough cash from its operations to stay afloat.
A Statement of Cash Flows is a financial report that summarises all cash receipts (money coming in) and cash payments (money going out) of a business over a given period — usually one month, three months, or a year. Unlike the Income Statement, which records sales and expenses on credit (when they happen), this statement tracks actual cash transactions.
The purpose is to answer a critical question: Where did the cash come from, and where did it go? This helps stakeholders assess whether a business can pay its debts, invest in new assets, and continue operating.
The statement is divided into three main activities:
1. Cash Flows from Operating Activities
These are the day-to-day cash transactions of the business — cash received from selling goods or services, and cash paid to suppliers, employees, and for operating expenses.
- Cash received from customers (cash sales)
- Cash paid to suppliers for inventory
- Cash paid for wages and salaries
- Cash paid for rent, utilities, and other expenses
2. Cash Flows from Investing Activities
These involve cash used to purchase or sell long-term assets, such as property, plant, equipment, or investments.
- Cash paid to buy machinery, furniture, or a vehicle
- Cash received from selling an asset
3. Cash Flows from Financing Activities
These involve cash related to borrowing money, repaying loans, or owner investments.
- Cash received from taking a loan
- Cash paid to repay loan principal
- Cash introduced by the owner (capital introduced)
- Cash withdrawn by the owner
The basic layout follows this structure:
Statement of Cash Flows
For the period ended ___________
Cash Flows from Operating Activities
Cash received from customers xxx
Cash paid to suppliers (xxx)
Cash paid for expenses (xxx)
Net cash from operating activities xxx
Cash Flows from Investing Activities
Cash paid for purchase of assets (xxx)
Cash received from sale of assets xxx
Net cash from investing activities xxx
Cash Flows from Financing Activities
Cash introduced by owner xxx
Cash received from loans xxx
Cash paid on loan repayment (xxx)
Net cash from financing activities xxx
Net increase (decrease) in cash xxx
Cash at beginning of period xxx
Cash at end of period xxx
The following balances relate to Mwisho General Store for the month of June 2023:
- Cash at bank on 1 June 2023: TZS 1,500,000
- Cash received from cash sales: TZS 4,200,000
- Cash received from credit customers (who paid): TZS 800,000
- Cash paid for purchases: TZS 2,400,000
- Cash paid for wages: TZS 600,000
- Cash paid for rent: TZS 300,000
- Cash paid to buy a new display shelf: TZS 450,000
- Owner introduced additional cash: TZS 500,000
Preparing the Statement
Step 1: Calculate cash from operating activities
Add all cash receipts from operations, then subtract all cash payments for operations:
- Cash from sales: TZS 4,200,000 + TZS 800,000 = TZS 5,000,000
- Cash paid for purchases: TZS 2,400,000
- Cash paid for wages: TZS 600,000
- Cash paid for rent: TZS 300,000
- Total operating payments: TZS 2,400,000 + TZS 600,000 + TZS 300,000 = TZS 3,300,000
Net cash from operating activities = TZS 5,000,000 − TZS 3,300,000 = TZS 1,700,000
Step 2: Identify investing activities
- Cash paid for display shelf: TZS 450,000
Net cash from investing activities = −TZS 450,000
Step 3: Identify financing activities
- Cash introduced by owner: TZS 500,000
Net cash from financing activities = TZS 500,000
Step 4: Calculate net change in cash
Net cash from operating activities: TZS 1,700,000 Net cash from investing activities: −TZS 450,000 Net cash from financing activities: TZS 500,000
Net increase in cash = TZS 1,700,000 − TZS 450,000 + TZS 500,000 = TZS 1,750,000
Step 5: Show the closing cash balance
Cash at beginning (1 June): TZS 1,500,000 Add net increase: TZS 1,750,000 Cash at end (30 June): TZS 3,250,000
Completed Statement
Statement of Cash Flows — Mwisho General Store
For the month ended 30 June 2023
Cash Flows from Operating Activities
Cash received from customers 5,000,000
Cash paid for purchases (2,400,000)
Cash paid for wages (600,000)
Cash paid for rent (300,000)
Net cash from operating activities 1,700,000
Cash Flows from Investing Activities
Cash paid for display shelf (450,000)
Net cash from investing activities (450,000)
Cash Flows from Financing Activities
Cash introduced by owner 500,000
Net cash from financing activities 500,000
Net increase in cash 1,750,000
Cash at beginning of period 1,500,000
Cash at end of period 3,250,000
- The Statement of Cash Flows records actual cash — not credit transactions.
- Operating activities are the core business transactions; investing activities involve long-term assets; financing activities involve loans and owner capital.
- A positive net cash flow means more cash came in than went out; a negative net cash flow means the business spent more than it received.
- The final cash balance must equal the cash balance shown in the balance sheet (or cash book) at the end of the period.
In Tanzania, a small shop owner at Buguruni Market in Dar es Salaam can use a statement of cash flows to track whether the daily cash collected from selling maize, rice, and cooking oil is enough to cover restocking costs, transport fees, and household needs. By preparing this statement each month, they can spot when spending on new shelves or a bicycle for deliveries exceeds cash earned — helping them avoid running out of money to buy more stock.
Swali
What is the primary purpose of preparing a Statement of Cash Flows?
Ingia ili kuwasilisha jibu lako na lihesabiwe katika umahiri wako.
Ingia ili kufanya mazoeziMwalimu
Umekwama? Niulize chochote kuhusu mada hii.
Ingia ili kumuuliza Mwalimu wa AI wa Sonza kuhusu swali hili.
Ingia ili kuuliza