What Is The Purpose Of The Statement Of Cash Flow?

Improved Essays
Statement of Cash Flows Every investor, creditor, potential partners or third party is interested in how well a business is doing before any money and/ or time is spent on that firm. In order for them to fully understand the financial well-being of a company, they must read a statement of cash flows. A statement of cash flow, is also known as “cash flow statement,” is defined as “a basic financial statement that provides information about cash receipts, cash payments, and the net change in cash resulting from the operating, investing, and financing activities of a company during the period” (Kieso, Weygandt, & Warfield, 2013).
Purpose of the Cash Flow Statement The statement of cash flow was required by the FASB, because the other financial statements did not pertain all the information necessary to provide great judgement on any company. Statements such as the balance sheet and the income statement could only provide financial data to a certain point (Kieso, Weygandt, & Warfield, 2013). The whole purpose of the
…show more content…
It not only helps future and present investors and creditors, but it also helps the firm itself. The data provided shows the ability to pay debts, and respond to the changes in cash flow, due to “unexpected needs and opportunities” (Kieso, Weygandt, & Warfield, 2013). When assessing the financial strength of an organization, investors and creditors are able to make judgements on how well the company is able to handle business, and it is the best time to find flaws in their spending or the borrowing of money. The overall statement of cash flow is there to help prevent businesses from going future into debt, and also monitor where the organizations money is going. Being able to manage the organizations finances is key to a successful business, and if investors and creditors are able to see that though the statement of cash flow, there will always be potential for future

Related Documents

  • Decent Essays

    1.Balance sheet which describes a company's assets and liabilities. 2.Income statement which describes a company's income and expenses. 3.Statement of Cash Flows which describes how corporate operating, investment, and financing activities have affected the company's cash position. 4.Statement of Retained Earnings which describes changes to shareholders equity (for example a payment of…

    • 53 Words
    • 1 Pages
    Decent Essays
  • Improved Essays

    Best Care Case Study

    • 485 Words
    • 2 Pages

    c. Net income is the total revenue- total expenses whereas the cash flow is the net income plus depreciation. In the case where there is no depreciation the two are the…

    • 485 Words
    • 2 Pages
    Improved Essays
  • Improved Essays

    Est1 Task 1

    • 627 Words
    • 3 Pages

    The statement of cash flow shows the changes in the revenue stream over a recorded period of time. Conclusion Each of these will be able to give the business a clear picture of their incoming revenue stream and give them the ability to use it to make educated decision on their future endeavors. It is important to track this information so the company knows what is working well and what needs improvement giving them more information to able to formulate clear plans with…

    • 627 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    The table above shows the net income and operating cash flows for Calgon Carbon Corporation, Energy Recovery, Inc and Federal Signal Corporation for the year ended 2010-2015. As you can see Calgon Carbon had the most positively correlated Net income and Operating Cash Flow’s, while Energy Recovery INC. Was the most negatively corellated, while Federal Signal Corporation fell in between the two companies. Net income and operating cash flows are related because net income = operating cash flow + accruals. Shown above a conclusion can be drawn about accruals based on the difference between net income and operating cash flow.…

    • 1136 Words
    • 5 Pages
    Improved Essays
  • Great Essays

    Question 1: A. In evaluating a company should an investor rely more on accounting profits or cash flow An investor should give his or her decisions basing on a statement of cash flows because: The greatest difference between profits and cash flows is that profits data use accrual accounting, while cash flows base on real figures. Precisely, profit data will be recorded in the current period regardless of a company received money or not. Meanwhile, the other expenses such as wages, interest and rents must be paid by cash.…

    • 1998 Words
    • 8 Pages
    Great Essays
  • Decent Essays

    3.1 Explain the importance of financial viability for an organisation Good financial management is essential when starting your business and for the expansion of your business. Getting your finances in order means your business can work more efficiently and puts you in a better position when seeking funding for growth. Successfully managing your finances can create sustainability and growth for your business, so it's important to get it right. Whether it's balancing the books, budgeting or good cash flow management, you can help improve the financial health of your business.…

    • 566 Words
    • 3 Pages
    Decent Essays
  • Improved Essays

    This is recognised as an expense for each year With each of the cash flow statements, they start with a section where there is a list of activities and transactions which increase the cash flow and following these transactions you can see if they have a decreased cash flow. Each section list a net cash flow and shows if it is positive or negative. For example, by looking at the cash flow account of Burberry Group plc (BRBY.L) we can see that between 13th March 2013 to 13th March 2016 that the total cash flow of operating activities and total cash flow from investing activities have had a negative reaction. It is suggested that by looking at financial a statement which comprises of the income statements, balance sheets, these statements can change the financial situation and statement by retaining earnings.…

    • 1042 Words
    • 5 Pages
    Improved Essays
  • Great Essays

    Woody 2000 Case Study

    • 1292 Words
    • 6 Pages

    Also the opportunity cost of losing one project is also taken into consideration. d. Cashman kept his cash flow chart a secret. Why and what would you have done? Cash flow statement gives an overview of all cash related activities that are happening in the company. Cash flow statement shows the flow of the cash in the business.…

    • 1292 Words
    • 6 Pages
    Great Essays
  • Improved Essays

    Mr Brankin can then work to fix the problem so that they don’t get forced into liquidation. This method of forecasting means that business are able to evaluate any liabilities which need to be met and use the budgets from the facilitate the budget seen from this to facilitate Asidua in setting targets and then been able to measure performance against this by looking at variances which may arise in forecasting Steve can make important strategic decisions if from looking at Asidua’s cash flow forecast it can be seen that their assets will not be able to meet liabilities this will cause Steve to make immediate action showing this method is extremely useful for him in the financial decision making process. Cash flow management Cash flow statements will similarly be used this Mr Brankin to assist in this decision making process. This cash flow statement is the actual record of receipts and payments in the business as opposed to those which are forecasted the shows the actual journeys the cash has gone through in Asidua overtime and will be used by Steve to evaluate and compare these actual receipts and payments from the business with those forecasted in the cash flow…

    • 2839 Words
    • 12 Pages
    Improved Essays
  • Great Essays

    The statement of cash flow is made up of three elements: Operating activities,…

    • 1280 Words
    • 6 Pages
    Great Essays
  • Improved Essays

    Note: any other work or activity not mentioned in the scope above will not be considered as a part of the project 2. PROJECT PLANNING: Benjamin Franklin once said that “If you fail to plan, you are planning to fail”. Starting from this quote, we can tell that woody The Woody2000 had no plan to start with, Moneysworth, neither involves the stakeholders in the planning process, he only depends (EID) to do the cost estimation; nor includes the procurement team in costs and contract . The selections of contractors were done without any benchmarking; in this case, the best way is to find tenders and then choose the best one with reasonable quote that can fit for the project. The Project Management Life Cycle “PMLC”would’ve been tool managing…

    • 1689 Words
    • 7 Pages
    Improved Essays
  • Improved Essays

    So may it be ax deductions , food expenses , clothing etc… or an amount invested in securities for expected goods returns are all listed and counted to yield Net Cash Flow . In Alice ‘s case Net Cash Flow was just $400 as her first annual free cash flow that she will save for investment. Cash flow statement implies assigning a plus (+) or minus ( - ) sign to each amount following the purposes they have served . For instance , If I repaid a $300 on car loan and interest , this amount should be noted -$300 or (300) , while a $400 investment will be written as $300 , simply . And Assuming that those numbers were the cash – related transactions I made for the period , I would better off with a $100 Net Cash Flow to complete my so-called statement.…

    • 1243 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    One should ask generates that cash flow. The flow of cash is a strong indicator of the health of a business. To identify and understand these sources of cash, one should examine the statement of cash flows to see how a business’s financial positions change. The statement of cash flows presents three primary activities of cash flow.…

    • 3795 Words
    • 16 Pages
    Improved Essays
  • Improved Essays

    The study will be anchored on the following theories: 2.2.1 Cash Conversion Cycle Theory Cash conversion theory was propounded by Blinder and Maccini (2001), cash conversion cycle theory is the time it takes a company to convert its resource inputs into cash. It evaluates how effectively a firm is managing its working capital. In most cases, a company acquires inventory on credit, which results in accounts payable. A firm can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the firm pays the accounts payable and collects accounts receivable.…

    • 888 Words
    • 4 Pages
    Improved Essays
  • Superior Essays

    My understanding of cash flow statement is important to my business, as I am made aware of the benefits of having cash flow and also understanding that cash flow can be manipulated. I have been introduced to the importance of cash flow and understanding that without it organisations cannot pay debts, acquire the stock or resources needed to function effectively, pay wages to members of staff, or obtain finance from lenders as well as without access to cash, organisations cannot take advantage of business opportunities and, particularly during times of economic turbulence, a lack of cash can be a significant risk (Atrill, 2013). Having this in mind will enable me to take better decision regarding growing my business and sustaining my employees as well as exploring better business opportunities. In regards to my personal finances this course has developed my knowledge on the understanding that financial statement reports the financial activity of a business, which includes the wages (salary/investment on individual),…

    • 1536 Words
    • 7 Pages
    Superior Essays