Cash flows statement

Cash flows statement is an integral part of your company accounts. The statement allow your company accounts’ readers to assess and understand your company’s ability to pay suppliers on time, customers invoices settlement. In short, your cash flows statement would give your readers an idea of your business’s liquidity and solvency position.

Presentation

Generally, your cash flows statement is categorically presented in the following main three headings. Each heading is explained below according to the International Accounting Standard (IAS) 7 definitions.

Operating activities

Operating activities are the principal income-generating activities of your business. Generally, transactions you would normally include them in your profit and loss account.

Examples
  • Sales
  • Commissions
  • Royalties
  • Fees
  • Other income
  • payment to suppliers
  • salaries and wages payment
  • Income tax payment and refund
  • Insurance claims received and insurance premiums paid
  • Annuities
  • business contracts receipts and payments

Investing activities

Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Examples
  • purchase of property, plant and equipment in cash
  • costs of financing the development of the property, plant and equipment.
  • Cash paid to acquire equity or debts instruments of other businesses and interest in joint ventures.
  • Cash received from sales of equity or debts instruments of other businesses and interests in joint ventures.
  • Advances and loans issued in cash to other parties
  • Cash receipts from the repayment of advances and loans issued to other parties.
  • Payments made in cash for futures contracts, forward contracts, option contracts and swap contracts (not classified as financing activities).
  • Cash receipts from for futures contracts, forward contracts, option contracts and swap contracts (not classified as financing activities).

Financing activities

Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of your business.

Examples
  • Cash received from shares issued.
  • Payments in cash to buy shares.
  • Cash received from issuing debentures, loans, notes, bonds, mortgages and other short term or long-term borrowings.
  • Repayment of borrowing in cash.
  • Cash payments to reduce the outstanding liability of a lease.

Acceptable cash flows statement format

The IAS 7 specify two acceptable methods you can use to prepare your cash flow statement. – The direct and indirect methods.

The direct method discloses the major classes of gross cash receipts and payments.

Whereas, the indirect method adjusts the profit or loss for the effects of transactions of non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.

Confirmation statement

Besides, preparing and submitting your cash flows statement as part of your company accounts with Companies House, you must also submit your confirmation statement with Companies House once every 12 months.

If you require assistance with your company’s accounts and confirmation statement filings, feel free to contact our accountants. They will be more than happy to assist you.

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