The document discusses the importance of the cash flow statement in addition to the balance sheet and profit and loss account. It states that the cash flow statement reflects the major sources of cash receipts and payments of a company and is helpful for investors, analysts, and others in assessing a company's ability to generate cash flows, meet obligations, and pay dividends. The cash flow statement classifies cash flows into operating, investing, and financing activities.
3. * The balance sheet provides information about
an enterprise’s
*assets and
*how the assets have been financed by owned and
borrowed funds at a point of time,
*but it does not explain the changes
during a period in assets, liabilities
and equity resulting from the
enterprise’s activities
4. *The profit and loss account provides
information about an enterprise’s financial
performance during a period, but because
earnings are measured by accrual accounting ,
it does not show the cash
generated through its operations.
5. * the cash flow statement reflects an
enterprise’s major sources of cash
receipts and cash payments.
6. Investors, analysts, creditors, managers and
others will find the information in the cash
flow statement helpful in assessing the
following….
* The ability to generate positive future net cash
flows.
*The ability to meet its obligations, its ability to pay
dividends and its needs for external financing.
*The reasons for differences between net profit and
associated cash receipts and payments.
*The effect on the enterprise’s financial position of
both its cash and non cash investing and financing
transactions during the period.
7. The major activities of cashflow
* The cash flow statement will reflect the cash
flow effects of each of the major activities of
the enterprise when the cash flows are
classified according to whether they stem from
* Operating Activities
* Investment Activities
* Financial Activities