Introduction
A funds flow statement is a financial statement that summarizes the changes in the entity’s working capital over a period of time. It shows how much money the entity has generated from its operations, how much money it has spent on its operations, and how much money it has generated from investing and financing activities.
The basic structure of a funds flow statement
A funds flow statement has three main parts: operating activities, investing activities, and financing activities. Operating activities are the cash inflows and outflows that are generated from the entity’s core business activities. Investing activities are the cash inflows and outflows that are generated from the entity’s investment activities. Financing activities are the cash inflows and outflows that are generated from the entity’s financing activities.
The format of a funds flow statement
A funds flow statement is typically presented in a horizontal format. Operating activities are listed first, followed by investing activities and financing activities. The total funds inflow and outflow for the period are summarized at the bottom of the funds flow statement.
Multiple choice questions:
- Which of the following is not a funds inflow?
- Cash received from customers
- Cash received from interest
- Cash received from the sale of assets
- Cash received from the issuance of shares
- The answer is Cash received from interest. Cash received from interest is an operating funds inflow, not a financing funds inflow. Financing funds inflows are generated from the entity’s financing activities, such as the issuance of shares or the borrowing of money.
- Which of the following is not a funds outflow?
- Cash paid to suppliers
- Cash paid to employees
- Cash paid for taxes
- Cash paid for dividends
- The answer is Cash paid for dividends. Cash paid for dividends is an operating funds outflow, not a financing funds outflow. Financing funds outflows are generated from the entity’s financing activities, such as the repayment of debt or the repurchase of shares.
- Which of the following is not a component of net funds flow from operating activities?
- Cash received from customers
- Cash paid to suppliers
- Cash paid for taxes
- Cash paid for dividends
- The answer is Cash paid for dividends. Cash paid for dividends is a financing funds outflow, not a component of net funds flow from operating activities. Net funds flow from operating activities is a measure of the cash that the entity generates from its core business activities.
- What is the purpose of a funds flow statement?
- To summarize the cash inflows and outflows of an entity over a period of time
- To show how much money the entity has made or lost over a period of time
- To show how much money the entity owes to others
- To show how much money the entity is worth
- The answer is To summarize the cash inflows and outflows of an entity over a period of time. A funds flow statement is a measure of the entity’s liquidity and solvency.