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What is the Financial SCFP?

Business firms have to manage revenues, and expenses, on the one hand, and cash inflows and outflows on other. The SCFP reports the firm's handling of cash flow and CF impact on the Balance Sheet.

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 the difference between the firm's current cash position and its 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 the following sections show how the SCFP serves in this way as a bridge between the other three 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 parts of 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 Balance sheet name helps explain why the primary name for the Cash flow statement is Statement of Changes in Financial Position.

Financial Cash Flow Statement Explained in Context

Sections below further explain and illustrate the Statement of Changes in Financial Position (SCFP) role in accounting and business analysis, focusing on three themes:

  • First, definition, structure, and contents of the SCFP, and why the SCFP became mandatory for public companies relatively recently.
  • Second, the meaning of SCFP cash flow metrics, and why the SCFP explains how the previous Balance Sheet changed into the Current Balance Sheet.
  • Third, use of the SCFP in cash flow management.


Related Topics

Statement of Changes in Financial Position
SCFP: Newcomer to the Set 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 has at least five commonly used names:

  • "Statement of Changes in Financial Position"
  • "SCFP"
  • "Cash Flow Statement"
  • "Funds Flow Statement"
  • "Statement of Sources and Uses"

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."

Statement of Changes in Financial Position
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 when they earn them along with the expenses that brought them. However, the resulting cash inflows and outflows may or may not, in fact, occur in the same period.

For firms using accrual accounting:

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

The timing and management of cash flow are 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 of noncash expenses on the Income statement. These are charges against earnings solely to lower reported Income (thereby lowering taxes). They do not represent actual cash flow. The best known noncash 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 difference 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:

Cash increase or decrease = "Sources of cash" – "Uses of cash."

Statement of Changes in Financial Position
Example SCFP Statements

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 simple structure of this statement. For more detail, see Exhibit 2, further below, for more of the line items possible in the SCFP.

SCFP Simple (High Level) Example Statement

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 noncash expenses are "added back."

Statement of Changes in Financial Position
SCFP Interface With Other Financial Statements

The values on the SCFP that represent accounts track 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 little Income statement—but with a significant 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 noncash expenses—an accounting convention for adjusting reported income on the Income statement, but not real cash flow. Hence, the SCFP adds them back 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 the last period's asset accounts and this period's asset accounts on the Balance sheet.
  • If the company used cash this period to repay debt, the SCFP entries under "Uses of cash" explain the difference between the last period's liability accounts and this period's liabilities on the Balance sheet.
  • If the company used profits to pay cash dividends to shareholders, the SCFP helps explain the source of dividend payments on the Statement of Retained Earnings.

For more on other significant financial reporting statements see