Cash flow notes, also known as cash flow statement disclosures, provide additional information and context about the cash flows presented in a company’s cash flow statement. These notes help users of financial statements understand the sources and uses of cash and cash equivalents during the reporting period. Here’s a detailed breakdown of the typical content of cash flow notes:
- Heading or Title: Each cash flow note should have a clear heading or title that describes its content. For example, “Note 1 – Cash Flows from Operating Activities” or “Note 5 – Non-Cash Transactions.”
- Note Numbering: Cash flow notes are typically numbered sequentially, allowing users to reference specific notes easily.
- Cash Flow Segmentation: Breakdown of cash flows into the three main categories: operating activities, investing activities, and financing activities. Each category should be discussed separately in the notes.
- Cash Flows from Operating Activities: Explanation of the components of cash flows from operating activities, including details about cash receipts and cash payments related to the core operations of the business. This note should discuss adjustments for non-cash items, such as depreciation, amortization, and changes in working capital.
- Cash Flows from Investing Activities: Disclosure of significant cash flows from investing activities, such as acquisitions, disposals of property, plant, and equipment, and investments in securities. This note may also provide information about capital expenditures and any significant purchases or sales of long-term assets.
- Cash Flows from Financing Activities: Details about cash flows from financing activities, including transactions with owners and creditors. This may include information about the issuance or repayment of debt, issuance of equity, payment of dividends, and any other significant financing transactions.
- Non-Cash Transactions: Explanation of non-cash transactions, including details about significant investing and financing activities that did not involve the use of cash or cash equivalents. This could include the issuance of stock for the acquisition of assets or the conversion of debt to equity.
- Significant Non-Cash Investing and Financing Activities: This note should provide information about any significant non-cash transactions, such as the exchange of assets or liabilities, that have a material impact on the financial position of the company.
- Reconciliation of Net Profit to Cash Flows: A reconciliation between the reported net profit (or loss) and the net cash provided (or used) by operating activities. This should highlight the adjustments made to convert net profit to net cash flow from operating activities.
- Changes in Non-Cash Operating Assets and Liabilities: Details about changes in non-cash operating assets and liabilities, such as accounts receivable, accounts payable, and inventories. This note should explain how changes in these items impacted the cash flow from operating activities.
- Interest and Taxes Paid: Disclosure of the amounts of interest and income taxes paid during the reporting period, separately in the operating activities section.
- Significant Cash Flow Variations: Explanation of any significant variations in cash flows compared to previous periods or expectations. This could include changes in operating, investing, or financing cash flows.
- Cash and Cash Equivalents: Information about the composition of cash and cash equivalents, including bank balances, short-term investments, and any restrictions on the use of cash.
- Operating and Financing Leases: Disclosure of cash flows related to operating and financing leases, as well as any lease-related cash flow commitments.
- Impact of Exchange Rate Changes: Explanation of the effects of exchange rate changes on cash and cash equivalents held in foreign currencies.
- Contingencies and Commitments: Disclosure of significant cash flow contingencies and commitments, such as guarantees or contractual obligations.
- Use of Non-Cash Assets for Operating Activities: Information about the use of non-cash assets, such as property or inventory, in operating activities.
- Other Disclosures: Depending on the company’s specific circumstances, there may be additional notes related to cash flows, such as details about significant acquisitions or divestitures, changes in ownership interests, or other relevant information.
Each cash flow note should provide clear and concise information, using appropriate headings, subheadings, tables, and numerical examples where necessary. These notes enhance the transparency and reliability of the cash flow statement, ensuring that users have a comprehensive understanding of the company’s cash flow activities during the reporting period. Note that the specific content and format of cash flow notes may vary based on accounting standards, regulatory requirements, and the company’s unique circumstances.