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Statement of Changes in Financial Position
SCFP Cash Flow Statement Explained With Examples


Unlike the other mandatory reports, the Statement of changes in financial position includes only items representing actual cash flow. The SCFP is in fact rightly called the "Cash flow statement.".

Business firms must manage revenues, and expenses, on the one hand, and cash inflows and outflows on other. The SCFP reports the firm's ability to manage cash flow.

What is the Statement of Changes in Financial Position?

The Statement of changes in financial position (SCFP) is one of the four primary financial accounting statements that public companies publish quarterly and annually. The SCFP is unique among these statements, in that it focuses solely on the period's cash inflows and outflows. As a result, the SCFP is sometimes better known as the firm's Cash flow statement.

SCFP Structure

The statement lists cash flow items in two main sections:

  • Firstly, Sources of Cash. These are the period's cash inflows.
  • Secondly, Uses of Cash. These are the period's cash outflows.

In this way, the SCFP accounts for difference between the firm's current cash position and it's position after the previous reporting period. On the statement, that difference appears as the difference between two main sections totals:

Sources of Cash – Uses of Cash
        = Increase (Decrease) in cash for the period

SCFP: A bridge between financial statements

Examples in following sections show how the SCFP serves in this way as a bridge between the other 3 mandatory reporting statements: the Income Statement, the Balance sheet, and the Retained Earnings statement.

  • The SCFP, for instance, uses Income statement figures to show why the current Balance sheet Assets and Liabilities sections differ from the same sections on the previous period's Balance sheet. 
  • Figures from the SCFP also impact dividend payments and retained earnings figures.

Note that government organizations and some firms (e.g., IBM)  call their Balance sheet a Statement of financial position. This helps explain why the primary name for the Cash flow statement is Statement of changes in financial position.

Financial cash flow statement explainedin context

Sections below further explain and illustrate the SCFP role in accounting and business analysis. Exhibit 1 below is a simple, high level version of a typical SCFP, while Exhibit 2 is a highly detailed version of the same statement.



Related Topics


SCFP: Newcomer to the list of mandatory reports

The SCFP, or cash flow statement, was the last of the four primary financial accounting statements to become mandatory. It was not required in the United States, for instance, until 1988. As a relatively young document, there is still some controversy within and between accounting standards boards regarding the handling of specific accounts on the SCFP.

There is also some controversy as to whether it is better called a cash flow statement, SCFP, or something else. Note that the SCFP is has at least five commonly used names:

  • Statement of changes in financial position.
  • SCFP
  • Cash flow statement
  • Funds flow statement
  • Sources and uses statement

In financial accounting, these names all refer to the same reporting instrument, the subject of this article. For more on the cash flow statement for business caseanalysis, however, see "Cash flow statement for the business case."

The cash flow management challenge

Business firms must manage revenues, and expenses, on the one hand, and cash inflows and outflows on the other. Most firms use accrual accounting, by which they report revenues in the period they are earned along with the expenses that brought them. However, the resulting cash inflows and outflows may or may not actually occur in the same period.

For firms using accrual accounting …

The timing and management of revenues, and expenses is critical for reporting earnings, determining taxes, and declaring dividends.

The timing and management of cash flow is critical for meeting short term obligations and needs: Employee wages, interest on loans or bonds, infrastructure upkeep, or investing in product development, for instance.

The SCFP enables effective cash flow management

Tax authorities also allow reporting non cash expenses on the Income statement. These are charges against earnings solely for the purpose of lowering reported Income (thereby lowering taxes). They do not represent actual cash flow. The best known non cash expense on the Income statement is depreciation expense, while others include amortization and writing off bad debts.

The SCFP, unlike the Income statement, includes only actual cash flow items. When a firm buys an asset with cash, for instance, the full transaction impact registers on the current SCFP. The Income statement, by contrast, reflects the asset purchase only through depreciation expense. This suggests the reason the SCFP has become mandatory in financial reporting: The Cash flow statement enables effective cash management

In any case, the SCFP reports real cash flow changes during the period, structured around this equation:

Increase or decrease in cash = Sources of cash - Uses of cash

Example SCFP

The example SCFP statements below are tied to the other statement examples in this encyclopedia for the Income statement, Balance sheet, and Statement of retained earnings. These four interrelated reports together represent the central financial reporting system for a company.

Exhibit 1 below is a simple, high level example showing the very simple structure of this statement. Exhibit 2, further below, shows many more of the line items possible in the statement.

SCFP Simple (High Level) Example Statement


Exhibit 1. Simple example, Statement of Changes in Financial Position

Detailed Example SCFP Statement

Exhibit 2, below, includes more line items and detail than Exhibit 1. This version shows how Expense totals from the Income statement are adjusted to represent real cash flow. Here, Income statement non cash expenses are "added back."


Exhibit 2. Detailed example, Statement of Changes in Financial Position

SCFP interface with other financial statements

The values shown on the SCFP that represent accounts can be traced to the company's other financial statements, the Income statement, the Balance sheet, and statement or retained earnings. 

  • Most revenue and expense items under "Sources of cash" come directly from the Income statement, for example, Sales revenues, Operating expenses, and the depreciation expense items. The Sources of Cash section of the SCFP in fact looks almost like a miniature Income statement—but with an important difference.
    • Both the Income statement and the SCFP Sources of Cash section start with Sales Revenues, and then subtract cost of goods sold, operating expenses, interest expense, and income tax expense.

      However, the SCFP adds back as positive cash inflows, any depreciation expenses that were part of operating expenses or cost of goods sold. 
  • Depreciation expenses are non cash expenses—an accounting convention for adjusting reported income on the Income statement, but not real cash flow. Hence, the SCFP adds them back in order to get Total cash inflows for the period.
  • On the other hand, if the company has used cash during the period to purchase assets or stock shares, the SCFP entries help explain the difference between last period's asset accounts and this period's asset accounts on the Balance sheet.
  • If the company has used cash this period to repay debt, the SCFP entries under Uses of cash explain the difference between last period's liability accounts and this periods liability accounts on the Balance sheet.
  • If the company has uses profits to pay cash dividends to share holders, the SCFP helps explain where the dividend payments on the Statement of retained earnings come from.
Other major financial reporting statements: see Income Statement, Statement of Retained Earnings, and Balance Sheet.