What is cash flow statement?
The cash flow statement which is also commonly referred to as the statement of cash flow is basically a financial statement depicts a complete summary of the total value of cash and its equivalent which either enters or goes out from any company. It is basically a measurement of the efficiency with which a particular company is able to generate cash in order to pay its debt obligations and also providing funding to its operating expenses. This cash flow statement is complemented by both the income statement and also the balance sheet. Stated in 1987, since then it has become an essential part of the financial reports of any particular company.
How can one utilize the cash flow statement?
CFS is helpful for the investors in understanding the manner in which a company operates. They analyze the sources from where the money is coming to them and also the areas on which they spend the money and the way in which the money is spent.
CFS helps in determining about a company’s financial condition and the extent to which their financial foundations are strong.
CFS is also useful to the investors who can easily determine the amount of cash which is available for the company so that they can pay for their debts and fund their operating expenses.
How to understand the cash flow statement?
Since a cash flow statement is the basis of determining the budget, timings and fixing the future cash flows, it becomes quite essential for any company to understand it.
A cash flow statement is basically a report which has a collection all the relevant data which is related to the inflow and outflow of cash which is made either in the form of receipt or in the form of payment. This procedure involves dealing with the operation, investment and financial aspects of that particular business in a given period of time.
In this way CFS acts as a bridge between the balance sheet and the income statement. They keep the track of inward and outward flow of money which helps in measuring the cash positing of a company.
The format of cash flow statement
The format of CFS mainly consists of three parts which are cash from working activites, from investing activites and financing activities. It also has a fourth part which is related to non cash activites called GAAP. Now when this CFS is disclosed by acknowledging the accounting principles, the non cash activites are included.
Operation of Cash Flow Statement
The operating activites generally depict the amount of cash that is generated by the products or the services of any particular business. The activites reflect the revenues which are primary producing. The CFS can be presented in two different modes which are direct and indirect presentation.
Step to prepare a cash flow statement
The following are the statements which are required to prepare the cash flow statement
- First the information is taken out form the income statement of the present year.
- After that a balance sheet of the past two years is prepared.
- Then adjustments are made to the net income for deferrals.
- And finally accruals take place.
Thus the CFS is important for any business and should be understood properly as they are helpful in many ways.