Construction of Cash Flow Statement
There are numerous variations in the form and terminology employed in statements of cash flow. The format of a funds statement based on the working capital concept. The cash flow statement may be divided into two principal sections, sources of cash and applications of cash. The difference between the totals of sources and applications of cash represents net increase/ decrease as the case may be in the cash balance.
This when added to or deducted from the opening balance of cash would be equal to the closing balance. A variant is to begin the statement with the beginning cash balance, add the total of sources, subtract the total applications and conclude with cash balance at the end of the period.
The data for the preparation of the cash flow statement are obtained from the two comparative balance sheets (one at the beginning and the other at the end of the period for which the statement is being prepared).
Supplemented by such other details which could be developed either from analysis of the receipts and disbursements recorded in the cash account or from the statement of income and retained earnings. Some of the relevant data might be obtained from accounts in the ledger or from the initial entries in the journals.
Format of a Cash Flow Statement:
A cash flow statement can be prepared in the following form: