Understanding the cash flow statement is essential for businesses in Singapore to manage their finances, maintain liquidity, and ensure financial stability. The cash flow statement, as a crucial component of the financial reporting framework, provides insight into cash movements within a company. It complements the statement of financial position and income statement by focusing on actual cash inflows and outflows, vital for sound financial decision-making.
What is a Cash Flow Statement?
A cash flow statement is a financial report that details the sources and uses of cash over a specific period. It shows how cash is generated and spent in different business activities, providing a snapshot of the company’s cash management effectiveness. Unlike profit figures, which include non-cash items based on accrual accounting, the cash flow statement exposes the real-time liquidity status of the business.
In Singapore, preparation of the cash flow statement follows the Financial Reporting Standard (FRS) 7 guidelines to ensure transparency and consistency across accounting services. FRS 7 mandates classifying cash flows into three main categories:
- Operating Activities: Cash transactions related to core business operations, such as receipts from customers and payments to suppliers and employees.
- Investing Activities: Cash used for purchasing or selling assets like equipment or investments.
- Financing Activities: Cash flows arising from borrowing, repaying loans, or issuing equity.
Why is the Cash Flow Statement Important in Singapore?
The cash flow statement serves multiple critical functions:
- Liquidity Monitoring: It helps businesses track whether they have sufficient cash to meet short-term obligations, avoiding cash shortages that might jeopardize operations.
- Financial Health Assessment: Provides a realistic view of the company’s financial position beyond net profit or loss reported in the income statement.
- Decision-Making Tool: Enables management to plan for expansion, investment, or financing based on real cash availability.
- Statutory Compliance: Aligns with Singapore’s financial reporting framework, fulfilling regulatory requirements for companies.
According to SingaporeAccounting.com, many businesses falter not due to lack of profitability but because of cash flow mismanagement. The cash flow statement is thus indispensable for surviving and thriving in Singapore’s competitive market.
Relationship with Statement of Financial Position and Financial Reporting
The statement of financial position, also known as the balance sheet, provides a snapshot of a company’s assets, liabilities, and equity at a specific point in time. While it shows what a company owns and owes, it does not detail how cash moves during a period. The cash flow statement fills this gap.
Financial reporting in Singapore requires companies to present a comprehensive set of financial statements, including the cash flow statement and statement of financial position. These documents collectively give stakeholders a full picture of financial health and operational performance.
| Financial Statement | Purpose | Focus Area |
|---|---|---|
| Statement of Financial Position | Shows assets, liabilities, and equity at a point | The company’s financial position |
| Income Statement | Reports profit and loss over a period | Profitability |
| Cash Flow Statement | Details cash inflows and outflows | Liquidity and cash management |
This trio forms the backbone of financial reporting and is frequently prepared by accounting services in Singapore to meet the requirements of regulators, investors, and internal management.
Methods for Preparing Cash Flow Statements
Under FRS 7, two methods can be used to prepare the cash flow statement:
- Direct Method: Lists actual cash receipts and payments during the period.
- Indirect Method: Starts with net profit and adjusts for non-cash transactions and changes in working capital.
Both methods are acceptable in Singapore, but the indirect method is often preferred for practicality and consistency with other accounting reports.
Common Cash Flow Items and Their Treatment
Singapore’s FRS 7 provides specific guidance on what to include in each category of cash flows. For example, equity investments are usually excluded unless they qualify as cash equivalents. Bank overdrafts repayable on demand must be included as part of cash equivalents to reflect accurate liquidity.
Dividends paid, interest received or paid, and income taxes can be classified differently depending on the business context, making professional accounting advice critical to precise reporting.
Financial reporting is key for business transparency in Singapore. It involves preparing financial statements under Singapore Financial Reporting Standards (SFRS) that show a company’s financial health for investors and regulators. Read up on our statement of financial position and cash flows for a clearer understanding of these reports. This resource helps businesses stay compliant and strategically manage their finances.
Why Engage Accounting Services in Singapore?
Preparing a cash flow statement that is compliant with Singapore’s accounting standards and that truly reflects the company’s cash position requires expertise. Professional accounting services in Singapore bring:
- Up-to-date knowledge of FRS 7 and financial reporting standards
- Insight into cash flow trends and potential growth areas
- Accurate integration with other financial statements for holistic reporting
- Advice on improving cash management strategies to enhance business sustainability
A reliable accountant not only prepares statutory reports but also helps interpret the statement’s findings to support better business forecasts and financial control.
Sample Cash Flow Statement Table
Here’s an example of a simplified cash flow statement showing key sections and typical line items:
| Category | Details | Amount (SGD) |
|---|---|---|
| Operating Activities | Cash received from customers | 500,000 |
| Cash paid to suppliers | (300,000) | |
| Cash paid to employees | (100,000) | |
| Net cash from operations | 100,000 | |
| Investing Activities | Purchase of equipment | (50,000) |
| Sale of investments | 20,000 | |
| Net cash used in investing | (30,000) | |
| Financing Activities | Proceeds from loans | 120,000 |
| Repayment of borrowings | (80,000) | |
| Dividends paid | (10,000) | |
| Net cash from financing | 30,000 | |
| Net Increase in Cash | 100,000 | |
| Opening Cash Balance | 50,000 | |
| Closing Cash Balance | 150,000 |
Singapore Cash Flow Statement Statistics
According to Singapore’s Accounting and Corporate Regulatory Authority (ACRA) data from 2024, 67% of SMEs reported improved cash flow management after adopting professional accounting services for financial reporting, including cash flow statements. This statistic underscores the critical role of accurate cash flow reporting in business sustainability.
Conclusion
Understanding and effectively managing the cash flow statement is crucial for businesses operating in Singapore. It offers transparency and insight into liquidity that net profits alone cannot provide. Coupled with the statement of financial position and other financial reports, the cash flow statement is foundational in guiding business decisions, ensuring regulatory compliance, and sustaining growth.
For Singapore businesses looking to enhance their financial reporting and cash flow management, engaging expert accounting services is a strategic move. DTL Accounting Group offers trusted, professional accounting services that not only ensure compliance with local standards like FRS 7 but also provide valuable insights into your company’s financial health.
Explore how you can optimise your financial reporting and cash flow management by contacting us today! Take the first step towards better financial management and more confident business planning with Singapore’s leading accounting experts.
