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