Cash Flow Statement

Cash Flow Statement

Definition and Explanation of Cash flow statement:

The purpose of the statement of cash flows is to highlight the major activities that directly and indirectly impact cash flows and hence affect the overall cash balance. Managers focus on cash for a very good reason―without sufficient cash balance at the right time, a company may miss golden opportunities or may even fall into bankruptcy. Click here to read full article

Understanding Cash Flow Statement-format and sections:

Three major financial statements are ordinarily required for external reports―an income statement, a balance sheet, and a statement of cash flows. The purpose of the statement of cash flow is to highlight the major activities that directly and indirectly impact cash flows and hence affect the overall cash balance. Managers focus on cash for a very good reason―without sufficient cash balance at the right time, a company may miss golden opportunities or may even fall into bankruptcy. Continue reading.

Cash Flow Statement Example-direct and indirect method:

Unlike the major financial statements, cash flow statement is not prepared from the adjusted trial balance. The information to prepare this statement usually comes from three sources:

  1. Comparative balance sheets provide the amount of the changes in assets, liabilities, and equities from the beginning to the end of the period.

  2. Current income statement data help the reader determine the amount of cash provided by or used by operations during the period.

  3. Selected transaction data from the general ledger provide additional detailed information needed to determine how cash was provided or used during the period

Preparing the cash flow statement from the data sources above involves three major steps:

Step 1. Determine the change in cash:
This procedure is straight forward because the difference between the beginning and the ending cash balance can be easily computed from an examination of the comparative balance sheet.

Step 2. Determine the net cash flow from operating activities:
This procedure is complex. It involves analyzing not only the current year’s income statement but also comparative balance sheets and selected transitions data.

Step 3. Determine net cash flows from investing and financing activities:
All other changes in the balance sheet accounts must be analyzed to determine their effects on cash. Continue reading.

Other Related Accounting Articles:

Recommended Books !



Or

Download E accounting book in MS-word format for just 20 $ - Click here to Download


Latest Comments
  1. awundeh nelson tita July 29, 2014

Leave a Reply

Your email address will not be published. Required fields are marked *