The document discusses cash flow statements, which show the movement of cash between periods. It has three main sections:
1. It explains what cash flow statements are, their purpose of showing cash inflows and outflows from operating, investing and financing activities, and their advantages like ascertaining liquidity.
2. It covers the classification of cash flows into operating, investing and financing activities and provides examples of cash flows for each category.
3. It describes the direct and indirect methods for showing cash flows from operating activities, noting non-cash items and other classifications are excluded under the direct method.
Material for PGPSE participants of AFTERSCHOOOL CENTRE FOR SOCIAL ENTREPRENEURSHIP. PGPSE is an entrepreneurship oriented programme, open for all, free for all.
Material for PGPSE participants of AFTERSCHOOOL CENTRE FOR SOCIAL ENTREPRENEURSHIP. PGPSE is an entrepreneurship oriented programme, open for all, free for all.
Financial Statements
Accrual-based approach
Revenues are recorded at the point of sale and costs when they are incurred, not necessarily when a firm receives or pays out cash.
Cash flow approach
Used by financial professionals to focus attention on current and prospective inflows and outflows of cash.
Cash FlowsIntroductionThe Statement of Cash Flows is the third.docxcravennichole326
Cash Flows
Introduction
The Statement of Cash Flows is the third basic financial statement that is presented with the Balance Sheet and the Income Statement on a periodic basis. By reviewing the changes in cash due to operations, investing activities, and financing activities, the analyst can better ascertain how cash was generated and spent.
The Statement of Cash Flows
The statement of cash flows was developed in the 1970s and 1980s as a reaction to the need for management to reconcile net income to available cash. Many managers questioned how a company could report a profit, but have no money, or report a loss and still have cash available; the statement of cash flows was developed to explain how the income statement related to the available cash. The statement of cash flows can help managers and business owners to understand the sources and uses of cash, and predict future cash requirements so that needs may be met.
The cash flow statement focuses attention on a firm's ability to generate cash internally, its management of current assets and current liabilities, and the details of its investments and its external financing (Libby, Libby, & Short, 2004). It is designed to help both managers and analysts answer important cash-related questions such as these:
Will the company have enough cash to pay its short-term debts to suppliers and other creditors without additional borrowing?
Is the company adequately managing its accounts receivable and inventory?
Has the company made necessary investments in new productive capacity?
Did the company generate enough cash flow internally to finance necessary investment, or did it rely on external financing?
Is the company changing the makeup of its external financing?
These questions and others can be answered through the preparation and examination of the statement of cash flows.
Operating, Investing, and Financing Activities
The statement of cash flows has three main sections: (a) cash flows from operating activities, which are related to earning income from normal, recurring operations; (b) cash flows from investing activities, which are related to the acquisition and sale of productive assets; and (c) cash flows from financing activities, which are related to external financing of the enterprise. The net cash inflow or outflow for the year is the same amount as the increase or decrease in cash and cash equivalents for the year on the balance sheet. Cash equivalents are highly liquid investments with original maturities of less than three months. The operating activities section of the statement of cash flows can be prepared using either the direct or indirect method; the investing and financing activities sections are always prepared directly.
Direct Method of Determining Cash Flows from Operating Activities
The direct method for reporting cash flows from operating activities separates all of the operating transactions that result in either a deb ...
Financial Statements
Accrual-based approach
Revenues are recorded at the point of sale and costs when they are incurred, not necessarily when a firm receives or pays out cash.
Cash flow approach
Used by financial professionals to focus attention on current and prospective inflows and outflows of cash.
Cash FlowsIntroductionThe Statement of Cash Flows is the third.docxcravennichole326
Cash Flows
Introduction
The Statement of Cash Flows is the third basic financial statement that is presented with the Balance Sheet and the Income Statement on a periodic basis. By reviewing the changes in cash due to operations, investing activities, and financing activities, the analyst can better ascertain how cash was generated and spent.
The Statement of Cash Flows
The statement of cash flows was developed in the 1970s and 1980s as a reaction to the need for management to reconcile net income to available cash. Many managers questioned how a company could report a profit, but have no money, or report a loss and still have cash available; the statement of cash flows was developed to explain how the income statement related to the available cash. The statement of cash flows can help managers and business owners to understand the sources and uses of cash, and predict future cash requirements so that needs may be met.
The cash flow statement focuses attention on a firm's ability to generate cash internally, its management of current assets and current liabilities, and the details of its investments and its external financing (Libby, Libby, & Short, 2004). It is designed to help both managers and analysts answer important cash-related questions such as these:
Will the company have enough cash to pay its short-term debts to suppliers and other creditors without additional borrowing?
Is the company adequately managing its accounts receivable and inventory?
Has the company made necessary investments in new productive capacity?
Did the company generate enough cash flow internally to finance necessary investment, or did it rely on external financing?
Is the company changing the makeup of its external financing?
These questions and others can be answered through the preparation and examination of the statement of cash flows.
Operating, Investing, and Financing Activities
The statement of cash flows has three main sections: (a) cash flows from operating activities, which are related to earning income from normal, recurring operations; (b) cash flows from investing activities, which are related to the acquisition and sale of productive assets; and (c) cash flows from financing activities, which are related to external financing of the enterprise. The net cash inflow or outflow for the year is the same amount as the increase or decrease in cash and cash equivalents for the year on the balance sheet. Cash equivalents are highly liquid investments with original maturities of less than three months. The operating activities section of the statement of cash flows can be prepared using either the direct or indirect method; the investing and financing activities sections are always prepared directly.
Direct Method of Determining Cash Flows from Operating Activities
The direct method for reporting cash flows from operating activities separates all of the operating transactions that result in either a deb ...
Cash Flow Statement is a basic concept which every young manager must learn. This presentation excellently explains what you should know about this topic!
1. Cash Flow statement
2. Permanent & Temporary Working Capital
3. Cash Flow and Common Size Statement
4. EOQ & Safety Stock
5. Return on Equity & Return on Capital Employed
A presentation about the Cash Flow Statement ,whole chapter is covered in the slides .one can easily understand the concept of cash flow statement
and a video is also there but link went missing so please search it on youtube by the name of "cash flow statement in 3-min" a beautiful video to understand the basic concept of cash flow statement.In the end a numerical has solved for the better understanding ,which let u fetch marks in your examinations.
Accounting standards are authoritative standards for financial reporting and are the primary source of generally accepted accounting principles (GAAP). Accounting standards specify how transactions and other events are to be recognized, measured, presented and disclosed in financial statements.
The Indian Accounting Standards were revised in September 2016.
This presentation tells about the AS 7 on Cash Flow Statement.
ACC 371 Lecture 7Statement of Cash FlowsIntroductionGenerall.docxaryan532920
ACC 371 Lecture 7
Statement of Cash Flows
Introduction
Generally Accepted Accounting Principles (GAAP) typically evolves in practice, rather than being written and then followed. An example of this evolution is the financial statement called, the statement of cash flows. Managers and business owners often asked why their companies were profitable but did not have available cash, or had plenty of cash but were operating at a loss. In response to this need, accountants developed the statement of cash flows to explain how cash was provided to the company or used by the company. The statement of cash flows is now a required financial statement according to GAAP. Since the statement of cash flows was developed long after the other three statements—the balance sheet, income statement, and statement of stockholders' equity—it does not follow the same flow as the other statements and requires information from all of the other statements, as well as additional information, in order to be compiled. Today, the statement of cash flows is one of the most significant financial statements for the potential investor or creditor.
Usefulness of the Statement of Cash Flows
The statement of cash flows is useful because it shows an organization's ability to produce future cash flows, provides an indication that the organization can meet its obligations, reports the differences between net income and net cash flows, and identifies the cash and noncash investing and financing activities during the period.
Profitable operations do not always ensure positive cash flow. While net income is important, cash flow is also critical to a company's success. Cash flow permits a company to expand operations, replace worn assets, take advantage of new investment opportunities, and pay dividends to its owners. Both managers and analysts need to understand the various sources and uses of cash that are associated with business activities.
The cash flow statement focuses attention on a firm's ability to generate cash internally, its management of current assets and current liabilities, and the details of its investments and its external financing (Libby, Libby, & Short, 2004). It is designed to help both managers and analysts answer important cash-related questions such as these:
Will the company have enough cash to pay its short-term debts to suppliers and other creditors without additional borrowing?
Is the company adequately managing its accounts receivable and inventory?
Has the company made necessary investments in new productive capacity?
Did the company generate enough cash flow internally to finance necessary investment or did it rely on external financing?
Is the company changing the makeup of its external financing?
These questions and others can be answered through the preparation and examination of the statement of cash flows.
Operating, Investing, and Financing Activities
The statement has three main sections: (a) cash flows from operating activities, which are relate.
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2. INTRODUCTION
Cash flow is a statement which picturise the position of the
changes in cash between one period to another period.
means cash flow statement describes the causes of change
in cash in one period to another period.
3. Cash flows
‘Cash flow’ implies movement of cash in and cash out due
to some non-cash items. Receipt of cash from non-cash
item is termed as cash inflow while cash payment in
respect of such items as cash outflow.
For example, purchase of machinery by paying cash is cash
outflow, while sale proceeds received from sale of
machinery is cash inflow.
4. Purpose Of Cash Flow Statement
The purpose of the cash flow statement or statement of cash flows is to
provide information
payments for
about a company's gross receipts and
a specified period of
gross
time.
The gross receipts and gross payments will be reported in the cash flow
statement according to one of the following classifications: operating
activities, investing activities, and financing activities. The net change
from these three classifications should equal the change in a company's
equivalents during the reporting period.
5. ADVANTAGE OF CASH
FLOW STATEMENT
1. Ascertaining Liquidity and Profitability
Positions:
Cash Flow Statement helps the management to ascertain the
liquidity and profitability position of a firm. Liquidity means
one’s ability to pay the obligation as soon as it becomes due.
Since Cash Flow Statement presents the cash position of a firm
at the time of making payment it directly helps to ascertain the
liquidity position, the same is also applicable in case of
profitability.
6. 2. Ascertaining Optimum Cash Balance:
Cash Flow Statement also helps to ascertain the optimum
cash balance of a firm. If optimum cash balance can be
determined, it is possible for a firm to ascertain the idle
and/or excess and/or shortage of cash position. After
ascertaining the cash position, the management can invest
the surplus cash, if any, or borrow funds from outside sources
accordingly to meet thecashdeficit.
7. 3. Cash Management:
Proper management of cashis possible if CashFlow Statement is
properly prepared. Themanagement canprepare an estimateabout
the various inflows of cashand outflows of cashsothat it becomes
veryhelpful for them to makeplans for the future.
8. 4. Movement of Cash:
A Cash Flow Statement presents the management the flows in and flows
out of cash for various purposes on the basis of which future estimated
can be prepared.
5. PerformanceAppraisal:
By comparing the actual Cash Flow Statement with the projected Cash Flow
Statements, the management can evaluate or appraise the performances
regarding cash. If any unfavorable variance is found, the reason for such
variation is located and rectified accordingly.
9. disadvantage of cash flow statement
1.Cash flow statement shows only cash inflow and cash outflow.
But, the cash balance disclosed by the statement cannot reveals
the true liquid position of the business
2.Net Cash Flow disclosed by Cash Flow Statement does not
necessarily mean net income of the business because net income
is determined by taking into account both cash and non-cash
items.
10. 3. It does not give complete picture of the financial position of the
business concern.
4.The preparation of cash flow statement is only postmortem
analysis. There is no projection of cash in future in this method.
5. It is not a substitute of Income Statement.
6.The accuracy of cash flow statement is based on the balance sheet.
If balance sheet is wrong, the cash flow statement is also wrong
11. Classification of cash flow statement
A cash flow statement typically breaks out a company’s cash
sources and uses for the period in to three categories
1. Cash flow from operating activities
2. Cash flow from investing activities
3. Cash flow from financial activities
13. INVESTING ACTIVITIES
The knowledge of cash flow from investment is essential
because by these cash flows that limit time is known by which
the creation for future the income and cash flows the expenses
are incurred.
Examples:--
1.Cash received on sale of fixed assets.
2.The amount received for loans and advances given to their
party.
3. Collection of loans.
14. Investingactivities
Cash inflows
Sales of property, plant equipment,
long term investments
Receipt from interest and dividends
Proceeds from issue of preference
or equity shares
cash outflows
Purchase of property, plant
equipment and non- current
investments
15. Financial activities
Cash flows from financing activities is a line item in the statement of
cash flow. This statement is one of the document comprising a
company’s financial statement. The line item contains the sum total
of the changes that a company experienced during a designated
reporting period that were caused by transactions with owners or
lenders to if the company is not-for-profit then you would also
include in this line item all contributions from donors where the
funds are to be used only for long term purpose.
16. OPERATING ACTIVITIES
This is the amount of cash that is generated by doing
what you do. This is how much cash is generated by
making, selling or providing services or product to your
customers. These are the activities or accounts that you
will find on your income statement. Add all the cash you
received from your customers, and subtract all your
expensesfor the month.
17. Cashflow from operatingactivities
(direct method)
As the name suggest, under direct method ,major heads of cash
inflows and outflows are considered.
The following items are not be
considered
1.Non cash items such as depreciation, discount on share,
etc. be written off.
2.Items which are classified as investing or financing
activities such as interest receive, dividend paid, etc.