The main use of the cash flows statement is to give data on the net change in cash receipts, cash payments and cash that result from financing, investing, and operating activities of an organization during an accounting year. The cash flow statement is used to measure the cash position of a company that is the outflow and inflow of cash and its equivalents in the company for an accounting year ( Paolone, 2020). Additionally, it helps an organization to know the cash available in their company. The knowledge of the cash position of a business helps the organization in planning for long- or short-term periods and in the analysis of the optimum working capital and cash level needed in the company ( Paolone, 2020) . Moreover, cash flows help businesses in analyzing the extent to which the planning of cash in the business became successful as the actual result using can be compared with the projected statement of cash flow.
The cash flows statement depicts its uses and sources of cash in three different groups:
Operating activities cash flows - arises from business actions used by a company in the production of net income ( Bhojraj, 2020) . For instance, cash flows operating activities include sources of cash “from sales and cash used” in the acquisition of inventory such as utilities and salaries.
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Investing activities cash flows- These are a company’s dealings linked “to a company’s long-term assets investments” ( Bhojraj, 2020) . They are “commonly identified from changes in the fixed assets section of the long-term assets of the balance sheet” and include a land sale.
“ Financing activities cash flows”- These are cash dealings associated with the organization “raising money from” stock or debt or debt repayment. They are recognized from fluctuations in equity and “long-term liabilities” ( Bhojraj, 2020) . Example s includes redemption of bonds and purchase of treasury stock.
References
Bhojraj, S. (2020). Stock compensation expense, cash flows, and inflated valuations. Review of Accounting Studies , 25 (3), 1078-1097.
Paolone, F. (2020). Concluding Remarks: The Importance of Cash Flow Statement. In Accounting, Cash Flow and Value Relevance (pp. 69-81). Springer, Cham.
