Learn how to understand Financial Statement of a company (with examples)

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AAHAcademy
Finance Management Course
AllAssignmentHelp Academy
  • 12 lessons
  • 6 quizzes
  • 1 week duration

4.1 What is Statement of Cash Flows?

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Cash flow statement shows the flow of the cash of the business. It shows whether the cash has come in to the business or it has went away.

Cash flow is an important financial statement as it fills the gap left out by the balance sheet and the income statement.

Cash management is very important and maintenance of the cash flow statement is mandatory. The reason is that the dubious companies may end up showing attractive performance on the income statement, but in actual situation might not be that great.

How this may happen, you may wonder?

It is possible that the company sells all its products on credit to the customers. This will show good sales and a high revenue on the income statement, but in actual company has just lent out it product without any actual cash.

Another importance is for the business owners herself. Cash flow tells the business owner where the cash come from and where it went.

Cash flow records only those inflow as positive where cash came in. if product is sold on credit, then there is no cash inflow in it. The increases in accounts receivable is cash reduction on the cash flow statement.