What Is A Cash Flow Statement?

1115 Words5 Pages
What is a Cash Flow Statement?
One of the most important part of starting a business is creating a cash flow statement, also known as the statement of cash flow. The statement of cash flows is defined as a statement of sources and uses of cash in a business for a specific period of time (Katz, J. & Green, R.). The statement of cash flow is the main one, of four financial statements, the other statements are just as important when owning and operating a business. The way that a business owner can prove the business is making money would be through keeping careful accounting records. Based on an accountant, there are five reasons why accounting is important to a small business.
• It proves how your business is doing financially.
• Shows
…show more content…
Income Statement is composed of the following two elements:
 Income: The business earnings over a specified period
 Expense: The cost of operating the business over a period
 Net profit or loss is obtained by deducting expenses from income
• Statement of stockholders ' equity; Statement of Changes in Equity, also known as the Statement of Retained Earnings, details the movement in owners ' equity over a period. The movement in owners ' equity is derived from the following components:
 Net Profit or loss during the period as reported in the income statement
 Share capital issued or repaid during the period
 Dividend payments Gains or losses recognized directly in equity
 Effects of a change in accounting policy or correction of accounting error (“What Is A Cash Flow” 2004).
Components of Cash Flow Statement
The inflow and outflow of cash must be reported in the statement of cash flow. It can be reported as either a direct statement; only from the business’s cash records or indirect statement; starts with net income and adjusts the accruals and deferrals that can be reconciled with the others statements. The following are activities that are recorded in the cash flow statement:
1. Operating activities includes all transactions performed in producing, and selling goods and services. It shows the movement of
Get Access