A cash flow statement is a financial report that presents the inflow and outflow of cash during a specific period in a business. The cash flow statement is a crucial tool that investors, analysts, and creditors use to assess a company’s liquidity and financial health. The statement is divided into three main categories: operating activities, investing activities, and financing activities.
Operating activities refer to the daily business operations that generate cash inflows and outflows. These include revenues and expenses such as sales, wages, and supplies.
Investing activities are cash flows related to the purchase and sale of long-term assets, such as property, plant, and equipment.
Financing activities are cash flows related to the funding of a business, such as borrowing money, repaying debt, and issuing and repurchasing stock.
The sources of cash include the collection of accounts receivable, sale of long-term assets, and borrowing money. The uses of cash include the purchase of inventory, payment of accounts payable, and the repayment of debt.
The cash flow statement is different from the fund flow statement in that it only focuses on the inflows and outflows of cash, while the fund flow statement includes both cash and non-cash items. The fund flow statement is used to analyze the movement of funds between the different financial statements and to identify changes in the financial position of a company over time.
In summary, the cash flow statement is a vital financial statement that provides information on the amount of cash that flows in and out of a business. The sources of cash include the collection of accounts receivable, sale of long-term assets, and borrowing money, while the uses of cash include the purchase of inventory, payment of accounts payable, and the repayment of debt. The cash flow statement differs from the fund flow statement in that it focuses on cash only, while the fund flow statement includes both cash and non-cash items.