Is the Cost of Goods Sold Present in the Statement of Cash Flow?


Statement of cash flow is a compulsory part of a company’s financial report since 1987 and even pairs up with the balance sheet and income statement. As a financial statement, it encompasses the inflow and outflow of the sum of cash and cash equivalents.

In order to measure the overall cash position of a company, a statement of cash flow is required to examine how well the company produces cash to recompense its debt liabilities and deposit its operating outgoings.

What is the statement of cash flow?

Also known as cash flow statement, it directs the amount of money flowing in or out of a firm throughout a specific time period. Cash flow statements only comprise of the amount of definite cash a business has, so the credit is not noted down.

Cash flow statements comprise of three parts:

  • Operations (which includes cost of goods sold)
  • Investing
  • Financing

What does a statement of cash flow demonstrate?

The statement of cash flow is a financial statement valuable to establish the link between the movement of cash into a business and the movement of cash out of a business.

It evaluates how much a company succeeds in its cash position, implying if the company generates cash to recompense its debt requirements and supply its operating expenses.

What is the Cost of Goods Sold (COGS)?

The cost of goods sold (COGS) states the cost of the product given to clients. On account of sales revenue goods being sold, it is stated on the income statement.

A seller’s cost of goods sold comprises of the cost from its contractor inclusive of all the extra charges associated with it as essential to get the product into inventory and arranged for sale.

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Operations determine the cash inflow and outflow of your business associated to your production or services. Along with the money that a business obtains from its clients, it also comprises of the fee required to operate your business.

Generally, the operating costs comprise of marketing costs, employee salaries, bank charges, office supplies, rent, and the cost of goods sold (COGS). COGS refers to the amount used up on your product and services raw materials and its employment.

Overall, the operations unit of a business’s statement of cash flow displays whether the business is producing sufficient money from its sales to balance its costs.

Cash Flow – Operational

The statement of cash flow starts with cash flow from operative events. Initiated from net loss or income, moved on to the adding to or subtracting from that total to regulate the net income to an entire cash flow amount. Then the company’s net income cash version is reached.

Net earnings

This amount denotes the outcome of a cash flow statement. Net income or earnings indicate how much profitable that company was for the span.

It is computed by summing up the incomes and profits (revenue) minus the total expenditures and COGS, containing the SG&A, Interest, Depreciation and Amortization, etc.

Plus: Depreciation and Amortization (D&A)

In a business, as time passes, the assets tend to lose value. As a result, Depreciation and Amortization are the costs that assign the total of an asset over its suitable lifespan.

Depreciation and Amortization decreases net revenue. Nevertheless, it is again added to the cash flow statement in order to regulate remaining income, as these are non-cash expenses.

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Less: Deviations In Working Capital

Working assets signifies the change of a business’s present assets and existing liabilities. With any fluctuation in current assets (except cash) and current liabilities, the whole cash balance in operating events gets affected.

Cash From Operations

After all the relevant adjustments are done, we reach the remaining amount delivered by the business’s operating actions.

It is not additional amount for remaining revenue. Nevertheless, relatively a brief sum of the amount of cash that was produced from the company’s primary dealings.

Bottom Line

All revenues, cost of goods sold (COGS), operating expenses, and income taxes are shown on a statement of cash flow. From this information, it can be derived that most of the operating expenses appear on the statement of cash flow.

However, only the depreciation expense accounts are the operating expenses that do not appear on the cash flow statement. The reason for depreciation expenses not being shown on the statement of cash flow is that depreciation is considered to be a non-cash expense.