WEEK 4 DISCUSSION 1 CASH FLOW STATEMENT 1

Week 4 Discussion 1 Cash Flow Statement

Cash Flow Statement

Cash Flow Statement is one of the major financial statements; the report summarizes the

amount and cash equivalent the company received and paid during a particular period. According

to (Heakal 2010), the cash flow statement indicates the flow of cash into and out of the business

organization. The statement accounts for cash, which includes the liquid money at hand and in

the bank and cash equivalent, which include short term investments that have a maturity that

does not exceed three months or 90 days. Examples of cash equivalent include; treasury bills,

commercial paper, and certificate of deposit.

The statement of cash flow is divided into three major sections; the operating section, the

activity section, and the financing section. The operating section accounts for all primary

activities of the company. Operating activities can be defined as the daily activities of the

company or the core objective of the company outlined in the company charter (Epstein, 2014).

The primary operating activities include; manufacturing, sales, advertising, and marketing

activities.

The second section of the cash flow statement is the investment section. The section

includes all investment activities of the company. Investment items include all activities that

have an overall change in capital assets such as plant and equipment. Other investment activities

include loss or gain from the investment in capital markets. The purchase of fixed assets and

lending of money are two examples of money into and out of organization in terms of investing

activities (Epstein, 2014).

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The last section of the cash flow statement is the financing section. The section accounts

for all financing activities carried out by the organization. The financing activities include

activities that have an overall change in company long term liability or equity. The financing

activities include all transactions conducted between the company, debtor, and shareholders.

Examples of financing activities include; payment of dividend, payments of interest, repayment

of the debt, and repurchase of stocks.

The cash flow statement is a critical financial statement to the creditors, shareholders,

investors, and other stakeholders since it helps to understand how a company has been

performing in terms of cash flows. In most cases, the company may be profitable but struggles in

terms of cash, which may be very disastrous in the future (Epstein, 2014). The cash flow

statement helps the stakeholder to understand company profitability and financial condition in

terms of cash flows.

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References

Epstein, L. (2014). Financial decision making: An introduction to financial reports. San Diego,

CA: Bridgepoint Education, Inc.

Heakal, R. (2010). What is the cash flow statement? Forbes. Retrieved from

http://www.forbes.com/2010/05/27/cash-flow-statement-personal-finance-securities-

analysis.html