Essay on Cash Flow Statement

3697 Words Oct 2nd, 2012 15 Pages
Introduction
In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an enterprise during a period. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows
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There are 3 major categories for the information that is reported on the Statement of Cash Flows. They are operating activities, investing activities, and financing activities. Between the three major areas, every aspect of a business’ transactions is covered. For example, it shows how a company purchases and finances an asset instead of just showing the amount.

* Usefulness:
The information provided in a statement of cash flows, if used with related disclosures and information in the other financial statements, can help investors, creditors, and others to (a) assess the enterprise’s ability to generate positive future net cash flows; (b) assess the enterprise’s ability to meet its obligations, its ability to pay dividends, and its needs for external financing; (c) assess the reasons for differences between net income and associated cash receipts and payments; and (d) assess the effects on an enterprise’s financial position of both its cash and noncash investing and financing transactions during the period; (e) improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods. For example, in Balance sheet, some companies may use FIFO method to

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