A Statement of Cash Flows is a financial statement that reports a nonprofit organization’s cash inflows and outflows for a given period. It provides information on the sources and uses of cash and is divided into three sections: operating activities, investing activities, and financing activities.
In the operating activities section, cash flows from the organization’s primary operations are reported, such as revenue from programs and grants, and expenses related to program delivery. In the investing activities section, cash flows related to the purchase and sale of long-term assets, such as property and equipment, are reported. In the financing activities section, cash flows related to the organization’s borrowing and financing activities, such as loans and grants, are reported.
The Statement of Cash Flows provides important information on an organization’s ability to generate and manage cash. It can also be used to analyze changes in cash balances and to evaluate the organization’s liquidity and solvency.
In for-profit accounting, the Statement of Cash Flows is similar in structure and purpose to the nonprofit version. It provides information on cash inflows and outflows for a given period, and is also divided into operating, investing, and financing activities. However, the cash flows reported in the operating activities section are primarily related to the sale of goods and services, rather than program delivery as in nonprofit accounting. Additionally, the financing activities section includes cash flows related to the issuance and repurchase of stock, which is not relevant in nonprofit accounting.
How is the Statement of Cash Flows Used?
The Statement of Cash Flows is used to provide information about the sources and uses of cash by a nonprofit organization during a specific period. It helps to analyze the changes in cash and cash equivalents, such as short-term investments, bank accounts, and other liquid assets.
The statement breaks down the sources of cash into three categories: operating activities, investing activities, and financing activities. Operating activities are the day-to-day activities of the nonprofit, such as the sale of goods or services. Investing activities include the purchase or sale of long-term assets, such as property, plant, and equipment. Financing activities are transactions related to raising capital, such as taking out loans or issuing stock.
By analyzing the sources and uses of cash, the statement of cash flows can help identify cash flow problems, such as a high cash burn rate or excessive spending. It can also help identify opportunities for investment or areas where the nonprofit can reduce expenses.
Additionally, the statement of cash flows is useful for financial planning and budgeting. It can help the nonprofit to anticipate future cash needs and to make informed decisions about the allocation of resources. For example, if the nonprofit anticipates a cash shortage in the near future, it may choose to delay the purchase of new equipment or to seek additional sources of funding.