Statement of Cash Flows

argument of Cash Flows Larry D. Abernathy ACC 421/Intermediate Financial Accounting I Richard Burden instruction of Cash Flows The facts contained in the balance sheet and the profit and loss mastery is connected by the bridge that is the asseveration of change attends. By put down the lessen of change and hard currency equivalents into and extinct of the familiarity the statement of cash rate of flow is a good indicator of a companys health. Thus, the purpose of the statement of cash flow is to reflect in say form the cash balances reflected in the balance sheet.The statement of cash flow has three main sections and each section tells us a unmatched thing close the company. The direct section tells us how the company is generating and victimization cash to support its day to day activities. Specifically, it gives nurture somewhat the payments for the gross sales of loans, debt or rightfulness instruments in a trading portfolio, the interest payment, evaluate pa yment, payments to suppliers for goods and services, dividends on equity securities, interest certain on loans, receipts received on loans and receipts from sale of goods and services.Also the cash flow statement helps appreciate the ability of the entity to pay its bills and ensure its obligations. The investing section tells us how a company is using its cash to grow long-term. If you see a stria of investments outflow, that means that the company is investing in capital projects that allow for birth its earnings in the long-term. It gives information about the investing activities that be apply with operating activities. The cash that goes into the investing activity of the firm is disclose by the cash flow statement.This includes loans do to suppliers, assets like and, purchase. Financing sections tells us the equity and debt situation of the company or how a firm is raising coin to support its defraud-term and long-term goals. In detail the cash in financing activiti es provides information about the proceeds from issuing sh argons, 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 entitys ability to generate a positive cash flow in the prox. The cash flow statement provides information from where the entitys cash is approaching 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 beginning balance of cash, the amount of cash received during the operating period, the amounts paid during the peri od, the net income increase or decrease in cash for the period and the final exam cash flow balance. When rateing the monetary strength of a business it is essential to know the cash flow statement because it gives an idea if the firm will be qualified 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 t o 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 do-gooder 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 observant 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 real liquid and will likely return money to the stakeholders and is likely to be in sound fina ncial condition. If a company is struggling accordingly 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 celestial latitude 12, 2012 from http//www. netmba. com/accounting/fin/process