The statement of cash flows tracks all business expenditures that require cash. The first section — operating activities — retains all information on cash operating costs. These costs come from a company’s financial accounting information; in short, there is no real concern as to whether the items are fixed or variable in nature. The statement simply reports the amounts of cash operating costs and whether the company experienced a cash inflow or outflow in this section for a given period. Several types of cash expenditures exist here, such as asset, payables, and other current liabilities.
Assets can be one of the largest groups of cash operation costs, especially for a manufacturing or retail business. Items included here are accounts receivable, inventory, supplies, prepaid assets, and other current assets. These items are commonly used in normal business operations, with the expectation of each individual group lasting less than 12 months. On the statement of cash flows, the outflows represent the actual money spent on these items. Each individual group has its own line and the total amount spent for a given period, typically in one month.
Payables represent items a company purchases on account, with the intent to pay the vendor at a later time. Common inclusion here for cash operating costs include notes, wages, payroll, interest, and taxes payable. The use of cash occurs when a company pays down its previous balance for any of these items during the current month. Similar to the assets described earlier, a single line represents each repayment for reducing these cash operating costs. An increase in a payables account, however, will decrease the cash flow as this indicates money spent by the company.
Other current liabilities are a final section, which details cash operating costs. These items may be unearned revenue or any other current liabilities that a company incurs. Accountants list each item that is a cash operating cost but fails to meet one of the criteria for the previous categories. Special, one-time items may also be here, so accountants can inform stakeholders about significant expenses the company pays for running the business. These can require disclosures if necessary to inform stakeholders about the nature of significant reductions in cash.
The statement of cash flows is for both internal and external stakeholders. Accountants may prepare other reports to detail a company’s cash operating costs. These less formal reports often meet the needs and demands of internal stakeholders. The format and information listed can include any number of figures from the company per standard managerial accounting processes.
