About the cash analysis we can say that it is the lifeblood of any business. In an organization we can see many activities to get the cash from sales, debtors, sale of assets, investment etc. like this the company spend also the cash in some areas – payment to salaries, rent dividend, interest etc. Lastly, we can say that cash flow reveals the inflow and outflow of cash during a particular period.
Objectives of Cash Flow Analysis:
Meaning of Cash Flow Statement
Uses of Cash Flow Statement
Steps in Preparing Cash Flow Statement
Distinguish between Cash & Fund Flow Statement
Compute the Cash from Operations
I have already mentioned about the meaning of Cash Flow Statement that it reveals the inflow and outflow of cash during a particular period in a particular organization. From the management point of view it is also important tool of cash planning and controlling.
Main objectives of Cash Flow Statements (CFS):
To show the causes of changes in cash balance between the balance sheet dates.
To show the factors contributing to the reduction of cash balance in spite of increasing profit or decreasing profit
Now, after knowing about the CFS objectives we can discuss about the uses of CFS:
It is for explaining the reasons for low cash balance
CFS shows the major sources and uses of cash
It helps in short term financial decisions relating to liquidity
From the past year statements projections can be made for the future
It helps the management in planning the repayment of loans, credit arrangements etc
If you want to prepare CFS then use these:
Opening of accounts for non-current items
Preparation of adjusted P & L Account
Comparison of current items
Preparation of Cash Flow Statements
Cash Flow Statements Formula:
Net Profit + Decrease in Current Assets - Increase in Current Assets
Increase in Current Liabilities Decrease in Current Liabilities
A format of Cash Flow Statement:
In the summery I can say that CFS study in the chapter is not in more details but all the understanding, uses, steps and meaning are clear. For more example and definition I will let you know further.
