Management Accountancy : Cashflow Statement

The cash flow statement is used to measure flows of cash into the business, as a business can hold a large amount of assets in the form of trade receivables, but unless they are changed into cash flows at some point they are little more than bad debt.  The method described is the “indirect method”.

Increases/decreases to trade receivables

Used to calculate flows of cash into the business, it is calculated in examples by taking the trade receivables from two accounting periods;

= Trade Receivables (in year 2) - Trade Receivables (in year 1) 

Increases/decreases to trade payables

Used to calculate flows of cash out of the business, it is calculated in examples by taking the trade payables from two accounting periods;

= Trade Payables (in year 2) – Trade Payables (in year 1) 

Simple Cash flow example

	£
Cash introduced	40
Cash from sales	45
Cash paid for stock	(45)
Closing Balance	£45