The statement of cash flows is one of the important financial statements issued in the business as a means of describing the flows of cash in and outside the organization. The focus of any statement of cash flows is the three types of activities, which create and use cash including operations, investments, and financing. In most cases, the statement of cash flows is considered to be less critical as compared with the balance sheet and the income statement but it is used to identify and drop activities that are not apparent in the financial statements relating to the business performance (Jeppson, Ruddy, & Salerno, 2016). Cash is any liquid amount available at hand or bank in the organization. Cash can be used by the organization any time when the need arises like paying wages or other investments in the organization.
Operating activities refer to any activity that generates revenue in the business. When an organization receives cash, the amount will be spent in other activities with the aim of generating more revenue. For example, the received cash will be spent on product sales, fines, payroll, lender and supplier invoices, and lawsuits (Al-Attar & Maali, 2017). Investing activities refer to the payments made in the business in the process of acquiring long-term assets and the cash received after selling the assets. Investing activities include transactions like buying or selling securities and purchasing fixed assets. Financing activities refer to the activities that change the borrowing or equity of the business. Some of the examples of financing activities include dividend payments, selling company shares, and repurchase of shares.
Delegate your assignment to our experts and they will do the rest.
Statement of cash flows helps the creditors, debtors and other investors to understand more about the organization. It will enable them to know the actual cash generated by the organization in the specific financial period. Most of the business indicates that they are taking profits in their financial statements, but after some time, the business will collapse due to insufficient cash. Statement of cash flows helps in addressing such issues before the investors decide to invest in a specific company. Statement of cash flows shows the amount of cash pumped into and out of the organization, which is considered by many people to be the same think posted by the financial statements (Jeppson, Ruddy, & Salerno, 2016). The difference is the complex part of the accrual period where the organization is required to record expenses and revenues when transactions occur. Most of the business experiences challenges in the process of operation and the solutions to challenges are on the statement of cash flows.
References
Al-Attar, A. M., & Maali, B. M. (2017). The EFFECT OF EARNINGS QUALITY ON THE PREDICTBAILITY OF ACCRUALS AND CASH FLOW MODELS IN FORCASTING FUTURE CASH FLOWS. Journal Of Developing Areas , 51 (2), 45-58.
Jeppson, N. H., Ruddy, J. A., & Salerno, D. F. (2016). The Statement of Cash Flows and the Direct Method of Presentation. Management Accounting Quarterly , 17 (3), 1-9.
