A statement of cash flows uses information from the income statement and balance sheet to identify how a company receives and uses cash. Stockholders’ equity is represented in financing activities, the third section of this statement. Changes in stockholders’ equity can lead to cash inflows or outflows, depending on the specific activity. A company often prepares a statement of cash flows after the preparing the other two financial statements. In most cases, the financing section is shorter than the operating and investing sections of the statement of cash flows.
Review the current balance sheet. Look at the stockholders’ equity section of the statement.
List all cash received as inflows in the financing section for the statement of cash flows. Only new stock issues, where the company receives money, should be cash receipts.
Subtract treasury stock purchases and dividends paid to investors. These are cash outflows that reduce stockholders’ equity.
Compute the net difference between cash inflows and cash outflows to determine the net change in stockholders equity for the current period.
Each cash receipt or cash outflow should have a separate line on the statement of cash flows.
Financing activities include monies received from debt and cash used to repay debt. These activities, along with changes in stockholders’ equity, make up the total financing activities for the statement of cash flows.
- "Fundamental Financial Accounting Concepts"; Thomas P. Edmonds, et al.; 2011