Statement of Cash Flows Essay

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Statement of Cash Flows

The Statement of Cash Flows is a very viable and helpful resource. Decision makers use the Statement of Cash Flows in many instances to assess the viability of a firm. Within the statement are many types of elements that are incorporated to create the complete Statement of Cash Flows. Also within the statement is what is known as the inflows and outflows. In some cases, activity notes may be incorporated to help complete such representations. To fully understand the Statement of Cash Flows one must know the definition of it and what it in fact means. The Statement of Cash Flows is a change statement summarizing the transactions that caused cash to change
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The cash flow statement has three components of cash flow which includes how cash enters and leaves a company such as operating, investing and financing as mentioned above.
The Statement of Cash flows includes measuring the cash inflows and outflows caused by operations. Cash inflows include cash received from: * Owners when sales are sold to them * Creditors when cash is borrowed through notes, loans, mortgages, and bonds
Whereas cash outflows includes cash paid to: * Owners in the form of dividends or distributions
STATEMENT OF CASH FLOWS 3 * Owners for the reacquisition of shares previously sold * Creditors as repayment of the principal amounts of debt (excluding trade payables that relate to operating activities)
The operations component of cash flow reflects how much cash is generated from a company's products or services. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected in cash from operations.
The cash flow is calculated by making certain adjustments to net income by adding or subtracting differences in revenue, expenses and credit transactions (appearing on the balance sheet and income statement) resulting from transactions that occur from one period to the next. These adjustments are made because non-cash items

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