The word “cash flows” indicates to the key question you should be asking when preparing the statement. “Was cash actually paid?” is the number one question that should always be asked.

For an example in a situation where you have bought PPE items during the period and now are going to disclose the outflows on the cash flow statement. Ask yourself though if there aren’t any invoices still unpaid for those items. This is something we have seen in practice happening quite a lot. If there are invoices still unpaid to suppliers, those are already a part of the changes in accounts payable and should always be excluded from outflows amounts done to purchase the items disclosed on the statement. The reason behind this is obviously a simple fact that the cash didn’t move.

Given, received and loans paid back – did the cash actually move? If the loan amount decreased, was it because some of it was paid back or just written off? In case it was just written off, it’s part of operating profit and is shown as a separate adjustment like depreciation. It’s never disclosed as a cash flow.

So, as a summary always ask yourself the simple question – did cash actually move?