Shuaib Abdul-Rahman Written by Shuaib Abdul-Rahman · 2 min read >

We started this brief in my last post and it is important we continue to ensure that we do justice to the subject. In a form of recap – business ventures prepare final accounts periodically to help measure their wellness. We already looked at two out of the various types of components of final accounts.

We shall be covering the remaining ones thus:

  1. Cashflow Statement
  2. Statement of changes in equity

Cashflow statement

The cash flows of a business are reported on the statement of cash flows. There are two variations on the template for this report, which are the direct method and the indirect method. The indirect method is used by nearly all organizations, since it is much easier to derive from the existing accounts. In the statement of cash flows, cash flow information is reported within three separate classifications. The use of classifications is intended to improve the quality of the information presented. These classifications are:

  • Operating activities. These are an entity’s primary revenue-producing activities. Operating activities is the default classification, so if a cash flow does not belong in either of the following two classifications, it belongs in this classification. Operating cash flows are generally associated with revenues and expenses. Examples of cash inflows from operating activities are cash receipts from the sale of goods or services, accounts receivable, lawsuit settlements, normal insurance settlements, and supplier refunds. Examples of cash outflows for operating activities are for payments to employees and suppliers, fees and fines, lawsuit settlements, cash payments to lenders for interest, contributions to charity, cash refunds to customers, and the settlement of asset retirement obligations.
  • Investing activities. These are investments in productive assets, as well as in the debt and equity securities issued by other entities. These cash flows are generally associated with the purchase or sale of assets. Examples are cash receipts from the sale or collection of loans, the sale of securities issued by other entities, the sale of long-term assets, and the proceeds from insurance settlements related to damaged property. Examples of cash outflows from investing activities are cash payments for loans made to other entities, the purchase of the debt or equity of other entities, and the purchase of fixed assets (including capitalized interest).
  • Financing activities. These are the activities resulting in alterations to the amount of contributed equity and an entity’s borrowings. These cash flows are generally associated with liabilities or equity, and involve transactions between the reporting entity and its providers of capital. Examples are cash receipts from the sale of an entity’s own equity instruments or from issuing debt, and proceeds from derivative instruments. Examples of cash outflows from financing activities are cash outlays for dividends, share repurchases, payments for debt issuance costs, and the paydown of outstanding debt.

Statement of changes in equity

Equity can be defined as the values of a corporation’s stakeholders that are used up for the business. It holds a share of the total in cash or in-kind dedicated for a business. Moreover, the total money signifies the tenure of a company. The statement of changes in equity allows a business to contemplate its gain or loss for a specific period.

Along with that, it keeps a record of other inclusive income during the year, the outcomes of variations in accounting strategies and alterations of substantial errors identified within that time, and the sum of savings by, and bonuses and other supplies to, equity stockholders throughout the period.

Statement of change in equity points out the modification in owners’ equity for an accounting period through the representation of the association in assets including the stockholders’ equity. It highlights the variations in equity starting from the initiation till the completion of the accounting time.

They may occur from businesses with new monetary investment, the bonus compensations, holder’s withdrawal, net gain or loss, and revision of fixed assets, etc.

Changes in equity for an accounting period contains the basic features mentioned below:

  • Net gain or loss for the particular accounting span
  • Extra expenses to investors
  • Increase or decrease identified straight in equity
  • Outcome of fluctuations in accounting strategies
  • Gain or loss in share monetary investments
  • Consequence of alteration of inaccuracy in previous time period

A statement of change in equity is therefore created to report variations in equity for business sorts, whether it is aimed at partnerships, corporations, or sole proprietorships. The ultimate aim of the statement remains to provide a brief movement for all the equity accounts within a specific period.


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