Cash Flows Statement and Statement of Changes in Equity

Balance sheet and income statement are well known financial statements but few understood the statements of cash flows and changes in equity.

Cash Flows Statement

Statement of cash flows presents the inflows and outflows of cash over a period of time. It excludes non-cash transactions like depreciation expense. The ending balance in the cash flows statement is always equal the cash balance figure found in the balance sheet.

Let’s take a look at Juan’s statement of cash flows:

Juan’s Statement of Cash Flows
For the day ended

Net income                      P100
Changes in Accounts payable:
Increase in due to mommy       50
Cash balance beginning           0
Cash balance, End                  P150

Notice the cash flows statement’s characteristics?
1.   Inflows and outflows of cash (money given by Juan’s mom is accounted)
2.   Over a period of time (similar to that of the income statement)

Statement of Changes in Equity

Statement of changes in equity presents the changes in equity over a period of time. Net income is included in the statement of changes in equity.

Below is Juan’s statement of changes in equity:

Juan’s Statement of Changes in Equity
For the day ended

Beginning balance of Equity        P   0
Net income                                      100
Ending balance of Equity           P100

The ending balance of the statement of changes in equity is always equal the equity presented in the balance sheet.

Did you notice the connection between the four basic financial statements?

Income Statement generates Net income figures which is needed in the Statement of Cash Flows, andStatement of Changes in Equity.

The figures generated by the Statement of Cash Flows is needed for the cash balance figure of the Balance Sheet.

The figures generated by the Statement of Changes in Equity is needed for the equity balance figure of the Balance Sheet.

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