The Cash Flow Statement

The bills Flow Statement * A Cash flow dictation is a financial report that shows the sources of a squargons cash in and its uses of cash. In other words, it answers the questions, where did the cash come from? and where did the cash go? Measuring Firms Cash Flow You jackpot explain the cash inflows and outflows of a business sector by looking at three cash flow activities. * Cash flow activities 1.Generating cash flows from periodic business operations It is the informative to know how much cash is universe generated in the normal course of operating a business on a daily fanny, beginning with purchasing inventory on credit, merchandising on credit, paying for the inventory, and fin each(prenominal)y collecting on the gross sales do on credit. 2. Buying or selling fixed assets. When a companionship buys (or sell) fixed assets, such as equipment and buildings, cash outflows (or inflow) result. These cash flows are non part of the regular day-to-day operations and, con sequently, are non include in the income statement.They appear only as changes from one balance plane to the next. 3. Financing the business. Cash inflows and outflows occur when the company borrows or repays debt when it distributes money to the owners, such as when dividends are paid or when the owners put money into the business in the form of additional equity. Profits versus cash flows * Entrepreneurs need to be aware that lettuce shown on a companys income statement are not the same as its cash flows. * An income statement is not a measure of cash flows because it is calculated on an accrual basis rather than a cash basis.This is an important point to understand in section. * In Accrual-basis accounting system, profits are recorded when earned- whether or not the profits have been received in cash- and expenses are recorded when they are incurred- point if money has not veridically been paid out. * In Cash-basis accounting, profits are reported when cash is received and e xpenses are recorded when they are paid. * on that point are several reasons, including the following, that profits based on an accrual accounting system will differ from the theaters cash flows 1. sales reported on an income statement include both cash sales and credits sales.So the total sales do not correspond to the actual cash collected. 2. Cash spent for inventory doesnt represent all inventory purchases since some inventory is financed by credit. 3. The depreciation expense shown in the income statement is a noncash expense. It reflects the costs associated with using an asset that benefits the firms operations over a period of several years, such as a piece of equipment used over five years. What every down in the mouth business owner should ask and understand is, How do you compute your firms cash flow?