Understanding cash flow statement
A cash flow statement is prepared to report the cash generated and utilized during the financial period or month as applicable to the company. Normally, the period of time is the same as the income statement and Balance sheet.
Cash flow statement reports a company's major cash flows in the categories mentioned below:
Operating activities- for the items reported in the income statement and operating in nature, i.e., in the normal course of business
- Investing activities- for purchase or sale of assets, long term investments
- Financial activities- for issue or purchase of shares, financing of loans
There are two ways to prepare cash flow statement- Direct and Indirect
Under the direct method, the cash flow method starts with cash-based transactions and does not include non-cash transactions. Whereas under the indirect method, a calculation is based on net income and adjustments are made with respect to changes in assets and liability accounts