Cash Flow Statement
Cash Flow Statement is otherwise known as Statement of cash flows is one of the important financial statement used in bookkeeping. It is mandatory for a full set of financial statements to fulfill the Financial Accounting Standards. This statement gives detailed information about the cash generated in a business and how it was spend in a give time frame.
The time period for the Statement of cash flows can be chosen by the businesses as they wish. Usually this period would be given as the heading of the cash flow statement.
Purpose of Cash Flow Statement:
Statement of cash flows clearly tells how the changes in the balance sheets accounts, income affect the cash flow. Cash flow is often analyzed down to the operating, investing, and financing activities. It also helps to identify activities that generate revenues to the company or a business based on the expenses incurred. The Statement of cash flows refers to cash in and cash out on the specific activities.
Operating Activities include converting items from the income statement to cash. Investing Activities like the purchase or sales of assets are also recorded. Payment, purchase of bonds or stocks or dividends is considered as "Financial Activity". The non cash activities like depreciation, write offs on bad debts are considered as "Supplemental Activities" it is given in the foot notes alone.
Advantages of Cash Flow Statement:
Cash flow statement is used to know the liquidity of a business at a glance. It provides additional information to evaluate changes in assets, liabilities and equity. Operating performance of a company can be improved by comparing with other companies method of accounting. Helps the investors in ascertaining the probability of future cash flows.