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DEFINITIONIn financial accounting, a cash flow statement, also known

as statement of cash flows, is a financial statement that shows how
changes in balance sheet accounts and income
affect cash and cash equivalents. Which means cash inflows and out flows
CLASSIFICATION

The three common classifications on Cash Flow

Statements include cash provided or used in:
Operating Activities Revenue-generating
activities of the business entity, they include cash
effects of transactions by which net profit or loss is
determined.fr e.g. accounts
receivable,depreciation, inventory and accounts payable

Investing Activities Typically activities

involving the acquisition and sale of fixed assets
(i.e. and, building and equipment) e.g Sale of Equipment ,
Sale of Land , Purchase of Equipment

Financing Activities Activities which change

the size and the composition of owners capital or
changes in debt,loans or dividends for e.g. Payment of
Dividends , Payment of Bond Payable

Conclusion
A company can use a cash flow statement to predict future cash flow, which helps
with matters in budgeting.

preparation
The cash flow statement is prepared by showing inflows and outflows of cash from a major activities of a
firm. The activitiesthat result in cash inflows are referred to as sources of cash and the activities that
result into cash outflows are referred to as uses of cash. For the purpose of preparing cash flow
statement,the firms activities are classified into three categories that result into inflows and outflows of
cash.
1. Cash Flow From Operating Activities
* Direct Method
* Indirect Method
2. Cash Flow From Investing Activities
3. Cash Flows From Financing Activities

importance
The cash flow statement provides information regarding inflows and outflows of cash of a firm for a
period of one year. Therefore cash flow statement is important on the following grounds.
1.Cash flow statement helps to identify the sources from where cash inflows have arisen within a
particular period and also shows the various activities where in the cash was utilized.
2. Cash flow statement is significant to management for proper cash planning and maintaining a proper
matching between cash inflows and outflows.
3. Cash flow statement shows efficiency of a firm in generating cash inflows from its regular operations.
4.Cash flow statement reports the amount of cash used during the period in various long-term investing
activities, such as purchase of fixed assets.
5. Cash flow statement reports the amount of cash received during the period through various financing
activities, such as issue of shares, debentures and raising long-term loan.
6. Cash flow statement helps for appraisal of various capital investment programs to determine their
profitability and viability.