Overview

The Statement of Cash  Flows

The Statement of Cash Flows (which recently has superseded the Statement of  Changes in Financial Position) reports the sources and uses of cash for the period, as analyzed into the three major classifications:

Operations include the cash effects of essentially all items identified in the Income Statement, such as sales, costs of sales, operating expenses and  extraordinary items.

Investing activities include the purchase of plant, property and equipment or  the proceeds from the disposition thereof, and also certain transactions involving investments in securities or other non-operating assets.

Financing activities include the borrowing and repayment of debt, as well as the contribution and redemption of equity capital and the payment of dividends  thereon.

Current Year Previous Year Cash Provided by (Applied to) Operating Activities $ 465,000 $ 272,000 Net income 479,000 300,000 Adjustments to reconcile net income to net cash provided by operating activities     Depreciation and amortization 479,000 300,000 Deferred income taxes 305,000 69,000 (Gain) on sale of property (142,000) (53,000) Changes in operating assets and liabilities     Accounts receivable (3,000) (64,000) Inventories (34,000) 129,000 Prepaid expenses 9,000 32,000 Accounts payable 13,000 22,000 Accrued expenses 108,000 (110,000)   Net cash provided by operating activities 1,200,000 597,000   Cash Provided by (Applied to) Investing Activities     Purchase of property (870,000) (1,430,000) Proceeds from disposal of property 38,000 7,000 Purchase of investments (22,000) ---   Net cash (applied to) investing activities (854,000) (1,423,000)   Cash Provided by (Applied to) Financing Activities     Additional long-term debt 137,000 863,000 Retirement of long-term debt (324,000) (560,000) Proceeds from notes payable --- 14,000 Retirement of notes payable (14,000) --- Issuance of common shares 72,000 466,000 Purchase of treasury shares --- (18,000)   Dividends paid (154,000) (133,000)   Net cash provided by (applied to) financing activities (283,000) 612,000   Increase (decrease) in cash and cash equivalents 63,000 (214,000) Cash and cash equivalents, beginning of year 314,000 528,000   Cash and cash equivalents, end of year $ 377,000 $ 314,000

The Statement of Cash Flows in Greater Detail

Operating Activities includes all  transactions and other events that are the result of delivering or producing  goods for sale and providing services. Generally, cash flows from operating  activities are the cash effects of transactions that enter into the determination of income.

Cash inflows from operating activities include cash receipts from the sale of  goods or services and from interest and dividend income. Cash out-flows for operating activities include cash payments for acquisitions of inventory. wages and benefits to employees, to government taxing bodies, as interest to lending institutions and to various other suppliers.

Investing Activities include lending money and collecting on those loans, acquiring and selling securities, and  acquiring and selling productive assets such as land and equipment.

Cash inflows from investing activities include principal repayments from borrowers, proceeds from sales of loans and receipts from sates of assets such as securities or machinery and equivalent. Cash outflows for investing  activities include-loans made, loans purchased, and payments to acquire assets  such as securities or property, plant and equipment.

Financing Activities include obtaining resources from owners, providing owners with a return on (of) their  investment, obtaining resources from creditors and repaying amounts borrowed.  Interest on borrowings, however, is an operating activity.

Cash inflows from financing activities include proceeds from the issuance of equity securities and from long- and short-term borrowings. Cash outflows for financing activities include payment of dividends, cash paid to reacquire the  company's stock and repayment of amounts borrowed.

The form of the cash flow statement illustrated above is the so-called indirect method " favored by most companies. However, an alternative format. the  "direct method" is also acceptable. Under that approach, the Cash Provided by (Applied to) Operating Activities section will list each major source or use of  cash which correspond to major captions in the income statement. For example. corresponding to sales will be the cash flow caption Cash Collected From Customers; corresponding to cost of sales will be Cash Paid to Suppliers; etc. If the direct method is used, the cash flow statement (or a supplementary  schedule thereto) will present the reconciliation between net income and cash from operation - which will closely resemble the cash from operations section of the statement illustrated above.