The statement of cash flow is an essential tool that is used by most organizations to predict the cash flow during the period of accounting. It gives information about the sum of money that has been paid or received by an organization. Also, it reveals the disbursement process and how the cash was generated.
The primary function of generating cash flow is to explain the changes in cash. It is utilized in the determination of adjustments happening on cash equivalents and the company’s cash by checking on how the cash was generated. Another significant purpose a statement of cash flow serves is it is harnessed to help in anticipation of the cash flows. On most occasions, the creditors, management, and other relevant authorities are concerned about the potential of the organization to display positive cash flows in the future. The statement of the cash flow, hence, anticipates the impact of cash disbursements and receipts.
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The three activities that the statement of cash flows depicts are financing, investing, and operating.
Operating Activities
Include those activities that can be linked to the net income. For instance, such activities can involve cash paid from merchandise and those coming from those goods sold since both revenues and expenses should be present in the net income (Anyushenkova & Samorukova, 2019).
Investing Activities
Activities entailed in this segment are associated with noncurrent assets. Such assets include property, equipment, and long term investments. For instance, cash issued for investing in a different institution. It could also include the purchase of physical assets, investment of an amount of money in securities, or an amount obtained after the sale of assets or securities Anyushenkova & Samorukova, 2019).
Financing Activities
Under financing activities, the focus is on the owner’s equity and noncurrent liabilities. Aspects that might be encompassed here include dividend payments, repurchases, and stock sales
References
Anyushenkova, O. N., & Samorukova, N. N. (2019). THE CASH FLOW STATEMENT OF A BUSINESS ENTITY. Наука и образование: новое время , (1), 220-223.
