Cash Flows

The cash flow statement on p74 is a summary of all the transactions that affected the cash account for the year. The cash flow statement helps to predict future cash flows. It helps to evaluate management decisions. Wise decisions lead to profits and strong cash flows, and vice versa. The investment activities show what investments the company is making. Cash flow statements also determine the company’s ability to pay dividends and debts. From the

Cash basis accounting gives an accurate reflection of a businesses’ cash flow. Since it only records revenue and expenses when they actually occur, the business knows how much cash it has on hand in that particular moment.

For an investor, operating cash flow is the profit that really matters. Net income involves all sorts of distortions that muddy the waters of understanding the true cash profitability of a company.

The main purpose of the cash flow statement is to show the entrance and exit of cash, and whether the cash gained as a result of the company's operations activities, investing or financing activities. A cash flow statement of a healthy company would show that the density of cash entrance comes from its operating activities. The net entrance or exist of cash should be equal to the difference between beginning and ending balance of cash that appears in the balance sheet

The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company 's current accounts:

Cash flow problems can be caused by a variety of factors these problems can destabilize the amount of income which will prevent the payment of liabilities that make a business function.

The cash flow statement is an important financial indicator of a company 's short-term viability. The report describes where the entity 's cash is generated from and how it is spent over a certain designated period of time.

Operating Activities: Activities associated w/ acquisition (buy inventory) and sale of company’s products and services. Also interest received or paid.

Operating cash flow results from the firm 's normal business activities. Operating cash flow is calculated the net income against items such as changes to accounts receivable, changes in inventory, and depreciation (Farshadfar & Monem, 2013). It measures whether an organization can

The statement of cash flows shows the cash inflows and outflows of the company for a specified period of time. There are two methods for preparing the statement of cash flows. The direct method shows the actual inflows and outflows. The indirect method starts with net income and then merges net income to the cash inflows and outflows.

Cash flows are very simplistic. One can think of it as the income and outgo of one’s financial success and liabilities. Merriam-Webster defines cash flows as,” the movement of money in and out of a business.” One can also consider and apply this to their personal finances. Thinking on things such as, “How much money is made?” and “How much money is spent?” According to Richard and Anna Linzer (2008), they describe the cash flow concept as,” Cash flow thinking involves focusing on the arrival of revenues and the departure of expenditures that occur during an institution’s fiscal year (3).” Again, making this concept personal, an individual can break this down to how much of a paycheck will come in and how much money does one need to pay out for bills and other expenditures during that pay period or fiscal year. To be able establish literacy of one’s personal finances, there must be an understanding of the liquidity of funds such as cash flows. Ultimately, understanding cash flows helps to motivate a budget.

      The Statement of Cash flows is a very useful financial statement that can benefit investors, managers and even auditors. The statement of cash flows has not been around as long as the other financial statements such as the balance sheet or income statement. It basically “illustrates the way accounting evolves to meet the requirements of users of financial statements.” (Marshall, 2003) The statement of cash flows is designed to provide important information about the cash that a company has received or has paid out during a certain time period. It provides a reason for the changes of cash received and paid by a company by taking into

Cash flow statements are usually used to determine the liquidity and solvency of one company. Hence, Focus Point Holding Berhad details out the cash or cash equivalent inflow and outflow of the company

One advantage of firms using their accounting profits over their cash flows is that it is possible to legally manipulate the figures for accounting profits. This means that a firm whose cash flows look poor on paper can make themselves appear to be doing better with their accounting profits. The primary advantage to using cash flows over accounting profits is that the time value of money is taken into consideration with more reliance on cash flows. However, time value of money is usually ignored when calculating accounting profits alone.

* Cash flow is more “direct” as “profit” is highly dependent on accounting conventions and concepts/principles