Essay on Cash Flow Statement

3697 Words Oct 3rd, 2012 15 Pages
In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an enterprise during a period. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows
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Support and Criticisms for Statement of Cash Flows: * A general criticism is that cash flow statements are not meaningful for some institutions such as financial institutions, small businesses, investment companies and non-for-profit organizations. Thus, the information in the statement of cash flows is not useful.
In the case of financial institutions, the identification of the core operating activities is important, because they differ markedly from nonfinancial companies in this respect. Consider commercial banking institutions, where the core operations can be divided between on–balance sheet activities and off–balance sheet activities. The off–balance sheet activities consist primarily of fee-based activities for services rendered that do not create an asset or a liability. These create no problem for the cash flow presentation because they appear on the income statement and flow directly through the operating section of the cash flow statement.
The major problems are created by activities that have significant impact on the balance sheet. They are: 1) managing the accounts of depositors, which appears on the balance sheet as liabilities; 2) lending money to customers, which appears on the balance sheet as assets; and 3) trading in securities, which appears on the balance sheet as assets.
If these are a

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