Essay on Financial Statement Of Cash Flow
Cash Flow is made up of revenue or expense streams that move between cash accounts over a stated time frame. The "statement of cash flows," traces the sources of cash created and used by a firm during the period is calculated by adding noncash charges (such as depreciation) to net income after taxes.
The purpose of FASB rules applied to financial statement makeup are not about tracking the movement of cash through your business. They are concerned with the measurment profit or loss. Income does not explain what happened to your cash balance during the accounting period. It simply explains net income based on the accounting rules governing income statement creation. Net income is only one component of understanding and managing your cash flow. The company can be bleeding cash despite showing profits. Accounting rules regulate when and how transactions are recorded in your financials. In contrast, the day-to-day reality of business dictates when you receive, or release cash.
We generate the Cash Flow Statement taking:
Net income (less): Adjustments
Net Cash generated from operations
Net Cash flows from investing activities
Net Cash flows from financing activities
Changes in cash are typically derived from one of three activities - operations, investing or financing. The statement of cash flows is principally useful in predicting future cash flows that may be available for payment of debt to creditors and dividends to investors. Bankers give priority to…