The State Of Cash Flow And The Statement Of Cash Flow

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In a business, it is important to know how funds are generated and spent. The statement of cash flows can provide this type of information. The statement of cash flows is important as it can give an overview that other income statements or balance sheets cannot. The following will give an overview of what a statement of cash flows is, what information it provides and why they are important in assessing the financial strength of an organization. What is the Statement of Cash Flows? Organizations needed a way to present how cash was flowing in and out of their operations. It was always difficult to show for assets that are close to becoming cash and current liabilities that are close to being paid in cash. The statement of cash flows can illustrate exactly how the working capital is moving in and out of the business over a short period such as over…show more content…
The cash flows statements shows cash activities from operating, investing and financing activities. The operating activities section reports on money received and expended from operations. The investing activities section, reports on cash transactions from the acquisition or sale of long-term or permanent-type assets. Last section of the statement of cash flows is the financing activities, this section reports investments action from stockholders and cash dividends (Warren et al, 1997, p. 20). The statements usually show outgoing cash activities such as cash paid to employees, cash paid to suppliers, interest paid, and income taxes paid out. The statement of cash flows show cash coming in from activities such as, cash collected from customers and interest and dividends received (Accounting Tools, 2015). There are two methods on how cash flows are reported; direct and indirect method. The methods differ from how the cash flow from operating activities is
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