How to Prepare Statement of
Cash Flows in 6 Steps
Introduction
Many people also struggle with preparing IFRS
statement cash flows because…
It’s the only statement prepared on a cash
basis, not on an accrual basis;
Accounting
records
must
be
adjusted
to
exclude non-cash items which might be quite
demanding.
Gather Basic Documents and Data
In order to start, you shall obtain at least the following
documents:
Balance sheet (statement of financial position) as at the
end of the current reporting period (closing B/S) and as at
the beginning of the current reporting period (opening B/S)
Statement of changes in equity for the current reporting
period .
Information about material transactions in your company
during the current reporting period.
1.
Calculate Changes in the Balance Sheet
Take the closing and opening B/S and make a simple table
with 3 columns: the first column – title of caption in B/S
(for example, tangible non-current assets).
The second column—balance of this caption from the
closing B/S and the third column—balance of this caption
from the opening B/S.
2.
Put Each Change in B/S
You should have a blank statement of cash flows ready
for further work. Ideally, you can use the statement of
cash flows from previous period and take only titles of
individual captions.
You should look to all changes in your balance sheet
and enter each number to the blank form of cash flow
statement.
For example:
You have calculated that change in your property,
plant and equipment is -10 000, so you enter this figure in the investing
part of your blank cash flows under the title “purchases of PPE”
3.
Make Adjustments for Non-cash Items
4.
Typical non-cash adjustments are usually as follows:
Depreciation Expense
Change in Revaluation Reserves
Interest Income and Expense
Foreign Exchange Differences
at the end of period
Income Tax Expense
Revaluation of certain assets
and liabilities at the end
of period
Expense for Recognition
Make Adjustments for Non-cash Items
You find out that your company entered into new material
lease contract. And there is a non-cash adjustment hidden for
sure, because on one side, increase in PPE was recorded that
was not purchased for cash.
On the other hand, increase in loans or lease liabilities was
recorded, but the company have not received any cash. So
you shall adjust for it
5.
Prepare Movements in Material Balance Sheet
You have made all material non-cash adjustments in your cash
flows without omitting something important. Well, if you are
sure that you have all available information from various
departments in your company to include, than fine. But if you
are unsure about it, then rather do this step.
It’s very easy. Just take the biggest or material items in your
balance sheet and reconcile their movements between opening
and closing balance. Check whether each movement is taken
into account for in your cash flow statement so far.
6.
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