Illustration 5. 3

PROFF COMPANY

Statement of Retained Earnings

For the Month Ended August 31, 200X

Retained earnings, July 31	$2,070
Add: Net income for August	1,500
	$3,570
Less: Dividends	1,000
Retained earnings, August 31	$2,570

Information... the financing and investing activities of a business may be helpful... appraising its continued profitability and solvency. The income statement, statement... retained earnings, and balance sheet often do not provide ready answers... such questions as: How much cash was generated... operations? Why is such a profitable firm only able to pay such meager dividends? How much money was spent... plant and equipment, and where did it come...? The statement of changes... financial position - the fourth major financial statement - provides answers... such questions. It reports the flow of funds... and... of a business and is often called a funds statement or a cash flow statement. The statement of cash flow is a derived statement... the sense that it is usually prepared... data originally collected for the balance sheet or income statement.

Cashflow statement shows money actually coming … and going … … a company … a particular period: cash inflows and outflows. It represents a restructuring and a more detailed presentation … entries found … other statements. The cashflow statement reports actual cash generated … a point … time, thus avoiding the problem … accruals. Usually, the cashflow statement breaks down the cash flow and outflow activities … three broad categories: cash … operating activities, cash … investment activities and cash … financing activities.

Net cashflow from operations is the money generated … the sales … the company’s goods or services, minus the money spent … supplies, staff salaries, etc. … the period.

Net cashflow from investment activities is the result … purchases of securities in other companies, money received … sales of securities in other companies, loans made … borrows, loans repaid and loan interest paid … borrowers, purchase … land, buildings and equipment.

Net cashflow from financing activities is the result of money received … short-term borrowing, money repaid … short-term borrowing, money received through issuing new shares and/or bonds … the company, dividends paid … shareholders.

Adding and subtracting the figures above, the company calculates its net cash position … the end of the year. Investors check the cashflow statements to see how the company is obtaining and using its cash – how much is made … its operations, how much it has raised … new share issues, etc.

Other names are sometimes used … it, including funds flow statement and source and application of funds statement.

3.5.7 Say it in English: