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Cash Flow Statements
Cash Flow Statements
Cash Flow Statements
INTRODUCTION
CASH IS THE BASIC INPUT NEEDED TO KEEP THE OPERATION OF THE BUSINESS GOING ON A CONTINUING BASIS;IT IS ALSO THE FINAL OUTPUT EXPECTED TO BE REALISED BY SELLING THE PRODUCT MANUFACTURED BY THE MANUFACTURING UNIT.CASH IS BOTH THE BEGINNING AND END OF THE BUSINESS OPERATIONS.ie cash on hand and demand deposits with bank. CASH FLOW STATEMENT IS ONE IMPORTANT TOOL OF CASH MANAGEMENT BECAUSE IT THROWS LIGHT ON CASH INFLOW AND CASH OUTFLOW OF A PARTICULAR PERIOD.
A FUND FLOW STATEMENT BASED ON WORKING CAPITAL IS VERY USEFUL IN LONG-RANGE FINANCIAL PLANNING BUT THIS STATEMENT MAY CONCEAL OR EXCLUDE TOO MUCH
DEFINITIONS
A CASH FLOW STATEMENT CAN BE DEFINED AS A STATEMENT WHICH SUMMARISES SOURCES OF CASH INFLOWS AND USES OF CASH OUTFLOWS OF A FIRM DURING A PARTICULAR PERIOD OF TIME, SAY A MONTH OR A YEAR. OR STATEMENT OF CHANGES IN FINANCIAL POSITION PREPARED ON CASH BASIS .
OBJECTIVES
IT DEALS WITH THE PROVISION OF INFORMATION ABOUT THE HISTORICAL CHANGES IN CASH AND CASH EQUIVALENTS OF AN ENTERPRISE BY MEANS OF A CASH FLOW STATEMENT WHICH CLASSIFIES CASH FLOW DURING THE PERIOD FROM THE OPERATING INVESTING AND FINANCING ACTIVITIES. IT IS USEFUL IN PROVIDING USERS OF FINANCIAL STATEMENT WITH A BASIS TO ASSESS THE ABILITY OF THE ENTERPRISE TO GENERATE CASH AND CASH EQUIVALENTS AND THE NEEDS OF THE ENTERPRISE TO UTILISE THOSE CASH FLOWS. TO SHOW THE CAUSE OF CHANGES IN CASH BALANCE BTW TWO BALANCESHEET DATES. TO INDICATE THE FACTORS CONTRIBUTING TO REDUCTIO OF CASHBALANCE INSPITE OF INCREASE IN SALES AND PROFIT AND VISE VERSA.
SCOPE
AN ENTERPRISE SHOULD PREPARE A CASH FLOW STATEMENT AND SHOULD PRESENT IT FOR EACH PERIOD FOR WHICH FINANCIAL STATEMENT ARE PRESENTED. USERS OF AN ENTERPRISES FINANACIAL STATEMENT ARE INTRESTED IN HOW THE ENTERPRISE GENARATES AND USES CASH AND CASH EQUIVALENTS.
LIMITATIONS
CASH FLOW STATEMENT GIVES THE MAIN ITEMS OF INFLOW AND OUTFLOW OF CASH ONLY AND DOES NOT SHOW THE LIQUIDITY POSITION OF THE COMPANY THIS STATEMENT IS NOT A SUBSTITUTE OF INCOME STATEMENT WHICH SHOWS BOTH CASH AND NON CASH ITEMS. THEREFORE, NET CASH FLOW DOES NOT NECESSARILY MEAN NET INCOME OF THE BUSINESS. IT CANNOT REPLACE FUNDS FLOW STATEMENT AS IT CANNOT SHOW THE FINANCIAL POSITION IN TOTALITY HISTORICAL IN NATURE LIMITED SCOPE EASILY INFLUENCED BY MANAGERIAL DECISIONS DOES NOT PRESENT TRUE PICTURE OF LIQUIDITY