Statement of Cash Flows

Statement of Cash Flows Larry D. Abernathy ACC 421/Intermediate Financial Accounting I Richard Burden Statement of Cash Flows The facts contained in the balance sheet and the profit and loss statement is connected by the bridge that is the statement of cash flows. By recording the flow of cash and cash equivalents into and out of the company the statement of cash flow is a good indicator of a company’s health. Thus, the purpose of the statement of cash flow is to reflect in record form the cash balances reflected in the balance sheet.
The statement of cash flow has three main sections and each section tells us a unique thing about the company. The operating section tells us how the company is generating and using cash to support its day to day activities. Specifically, it gives information about the payments for the sales of loans, debt or equity instruments in a trading portfolio, the interest payment, tax payment, payments to suppliers for goods and services, dividends on equity securities, interest received on loans, receipts received on loans and receipts from sale of goods and services.
Also the cash flow statement helps assess the ability of the entity to pay its bills and meet its obligations. The investing section tells us how a company is using its cash to grow long-term. If you see a lot of investments outflow, that means that the company is investing in capital projects that will sustain its earnings in the long-term. It gives information about the investing activities that are used with operating activities. The cash that goes into the investing activity of the firm is disclose by the cash flow statement.

This includes loans made to suppliers, assets like and, purchase. Financing sections tells us the equity and debt situation of the company or how a firm is raising money to support its short-term and long-term goals. In detail the cash in financing activities provides information about the proceeds from issuing shares, from issuing short term or long term debt, from capital leases, repayment of debt principal, payments made for repurchase of shares and payments of dividends. Fundamentally, the purpose of the cash flow statement is to inform about the past sources of cash to forecast the bility of the entity’s ability to generate a positive cash flow in the future. The cash flow statement provides information from where the entity’s cash is coming from. Is it coming from operations mainly or it is coming from other sources. The cash flow statement also provides information about the effect of investment and financing on the operations of the business. There are three parts of the cash statement namely cash from operating activities, investing activities and financing activities.
The cash flow statement gives us the opening balance of cash, the amount of cash received during the operating period, the amounts paid during the period, the net increase or decrease in cash for the period and the final cash flow balance. When assessing the financial strength of a business it is important to know the cash flow statement because it gives an idea if the firm will be able to pay salaries and other immediate expenses. The cash flow statement also gives information if the firm will be able to repay its creditor. The cash flow statement also informs the lender or potential lenders if the company is financially sound.
The contractors and future employees can assess if the cash flows of the company will be able to pay them salaries. While assessing the financial strength of a business it is necessary to know the time, amount and chances of future cash flows, the cash flow statement provides this information. For assessing the financial strength of a firm it is important to compare the operating performance of different companies, the cash flow statement allows this comparison. Further, it is important to ass the changes in assets, liabilities and equity. The cash flow statement provides such an opportunity.
Most importantly, it is necessary to know the liquidity and cash in hand of a firm. Essentially the cash flow statement helps assess the financial position of the company by indicating to an investor how much cash flowed into and out of the company over a period of time and in addition it helps reconcile the income statement with the balance sheet. The accounting assumptions that are used for preparing the income statement and the balance sheet are compared with the hard cash earned. No assumptions are made in the preparation of the cash flow statement, and there are not estimations in the cash flow statement.
Finally, by closing observing the statement of cash flow, one can determine the solvency of a company and how liquid it is. Having excess cash is an indicator that a company is very liquid and will likely return money to the stakeholders and is likely to be in sound financial condition. If a company is struggling then it will have very little cash. It will struggle to meet its debt obligations and may go into bankruptcy as well. References The accounting process. (2010). Retrieved on December 12, 2012 from http://www. netmba. com/accounting/fin/process

Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more