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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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What is a statement of cash flows?

To determine

Introduction:

Cash flow statements are the statements that determines the inflow and outflow of cash from three major activities that are carried out in a business, i.e., operating activities, investing activities, and financing activities.

To explain:

Cash flows statement.

Explanation

Cash flow statements are the statements that determine the inflow and outflow of cash or in other words it calculates the net changes that occur in cash and cash equivalents from beginning to the ending cash and cash equivalents. The cash flow statement reflects the liquidity of the firm. It calculates the cash that we have in the beginning of year and the cash that is left out with us at the ending of the year.

The cash flow statements are classified into three major activities:

  • Cash flow from or used in operating activities
  • Cash flow from or used in investing activities
  • Cash flow from or used in financing activities

Cash flow from operating activities calculates the inflow and outflow of cash from day-to-day activities. It includes operating income and operating expenses for the year.

Cash flow from investing activities calculates the inflow and outflow of cash from purchase and sale of fixed asset.

Cash flow from financing activities calculates the inflow and outflow of cash from issue of shares and debentures and long term-borrowings or repayment of loan and redemption of debentures.

Statement of cash flows

A. Cash from or used in operating activities
B. Cash from or used in investing activities
C. cash from or used in financing activities
Net change in cash (A+B+C)
Add. Cash and cash equivalents at the beginning of the year
= Cash and cash equivalents at the end of the year
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