Statement of Changes in Position

The statement of changes in financial position provides data that are not explicitly present in the balance sheet or the income statement. This statement helps to explain how your company acquired its money and how it was spent. This statement can also help to identify financing needs, to identify cash drains, and to identify holes in the cash budgeting process. Use the statement of changes in financial position as a tool to analyze cash inflows and outflows. Also, use it as a starting point to forecast future cash flows and financing requirements.

Accounting standards give preparers of this statement quite a bit of flexibility in how they arrange and format the information. However, the Financial Accounting Standards Board has stated its intention that this statement should evolve into one whose focus is on cash and changes in cash. This position has been strongly endorsed by the Financial Executives Institute (FEI). As might be expected, more and more companies are using a cash focus for the statement of changes in financial position. In fact, the statement is often called the "Sources and Uses of Cash Statement."

An example of a cash-focus statement of changes in financial position appears below.

Jones Tool Company
Statement of Changes in Financial Position for the
Years Ended December 31, 200Z, 200Y, and 200X

200Z 200Y 200X
Sources of cash
Net income $X $X $X
Add back non-cash deductions from net income:

Deferred taxes X X X
Cash provided by operations $X $X $X
Issuance of stock X X X
Sale of fixed assets X X X
Total sources of cash $XX $XX $XX
Uses of cash
Purchases of equipment ($X) ($X) ($X)
Purchase of company debt (X) (X) (X)
Total uses of cash $XX $XX $XX
Net increase in cash $X $X $X
Cash, beginning of year X X X
Cash, end of year $XX $XX $XX
(The notes are an integral part of this statement.)

The statement of changes in financial position should also include a supplement detailing the net changes in working capital. Specifically, this would include increases (or decreases) in accounts receivable, inventory, and accounts payable.