Analyzing The Statement Of Cash Flows The Cash Flow Statement

1906 Words Apr 10th, 2016 8 Pages
The use and purpose of the Statement of Cash Flows
The cash flow statement identify the sources of cash flowing into the business and shows how they have been used over a period. Companies or users need to read this statement in conjunction with trading and profit and loss accounting and balance sheet and also in the context of the statement in the previous year. (Cox, 2004) This statement provides a useful tool for analysing management decisions and strategy. It can reveal such things as the amount of liquid funds generated from operating activities; the ways in which financing occurred and investment activities during a period.
This information can help companies or users to assess whether liquid funds generated are sufficient and whether they have been raised and applied in an appropriate way. The importance of liquidity to a business is difficult to overstate. It is not allow a profitable business to be forced to crease trading because it does not have enough liquid funds to meet its maturing liabilities. (Atrill et al, 2001) The objective of International Accounting Standard 7 is require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows which classifies cash flows during the period from operating, investing and financing activities. The standard aim to give the financial statements of the companies with a basis for assessing the ability of the entity to generate cash and cash…

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