Definition, Purpose and Benefits of Cash Flow in Company Financial Records

Funding Cash Flow

Funding cash flow is a report containing the company's financing. The financing can be in
the form of adding or subtracting capital which is carried out in a certain period. Examples of
funding cash flows include bank loans, bond issuances, stock issuances, and so on.

Investment Cash Flow

This cash flow is a transaction related to investments made by the company, these
investments can be in the form of cash outflows and cash inflows. Some examples that
include investment cash flow are the purchase or sale of fixed assets, investments in shares,
and so on.

Operating Cash Flow

This type of cash flow relates to all company operations that occur within a certain time.
Some examples that are classified as operational cash flows are tax payments, receivables
income, debt payments, employee salaries, cash receipts from consumers, interest
payments, and various other operational activities.

Cash Flow Goals

Knowing the entity's cash flow capability in the next period

The first purpose of applying the company's cash flow is so that the company can find out
how much the entity's ability to determine future cash flows. Companies can find out the
uncertainty of this cash flow by observing the relationship between report items.

Knowing the ability to pay dividends

When a company applies a cash flow statement, it can obtain information about its ability to
pay dividends and to meet its obligations. Companies can get an overview of employee
salaries, debts to be paid, and so on.

So do not be surprised if investors and users of financial-related information will be

interested in knowing the cash flow statements owned by the company. That way, they can
draw conclusions as to what kind of company it is.

Check every investment transaction

The third purpose of implementing cash flow in the company is so that the company can find
out and check what transactions are carried out. The company can find out what obligations
must be carried out and the amount of assets it has

Cash Flow Benefits

When the company applies cash flow or records all company transactions, the company will
get several advantages as follows:

Knowing the company's capabilities

The first benefit of having cash flow is that the company can find out what its capabilities are
through cash reports. That way, the company will have an idea of how far the company is
growing and how much cash it can generate. Of course, this one benefit plays an important
role in the survival of the company.

1
Muh.Ferial Ferniawan/A031191156
 Definition, Purpose and Benefits of Cash Flow in Company Financial Records

Knowing operational progress

The second benefit is that the company is able to know its own capabilities regarding the
company's operations. The company can have an idea of how well the company is in
carrying out its operations.

Knowing the company's advantages

The benefit of implementing cash flow for the company is that it can be used as a guide to
find out how much profit the company can generate. All companies and other business
entities must run with the hope of getting profits with different percentages.
Therefore, when the company wants to get information on how much or what percentage of
the profit generated by the company, it can be done through a cash flow statement. The
company will obtain information about how much net profit has been generated.

Corporate decision making

By knowing the cash flow that is arranged systematically and sequentially from each
transaction, then this can be a guide as to what the next steps will be taken by the company.

How to Prepare Cash Statement

Indirect method
The first way is to use the indirect method. This method is more focused on the difference
between net income and cash flows from operating activities. Because in determining cash
flows related to operational activities, what is calculated is not cash but the effect of
transactions, investment expenses, and elements of income based on the financial balance
sheet and also the profit and loss statement.

Direct method
In the direct method, the report will first be grouped into three parts, namely investment,
operations, and financing. Furthermore, it will still be divided into two for each of these
activities, namely expenditure and income. After that, it also still has to be divided again
based on what kind of activities on income and expenses. It should be understood that
reports made based on the direct method tend to be easy to understand so that readers can
understand the source of the funds and what the funds are for.

2
Muh.Ferial Ferniawan/A031191156