Submitted by: Submitted by christineangelo
Views: 57
Words: 2230
Pages: 9
Category: Business and Industry
Date Submitted: 07/07/2014 01:21 AM
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Purpose
The cash flow statement was previously known as the flow of Cash statement. The cash flow statement reflects a firm's liquidity.
The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time, and the income statement summarizes a firm's financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues. The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a few. The cash flow statement is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activities. Non-cash activities are usually reported in footnotes.
The cash flow statement is intended to
1. provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances
2. provide additional information for evaluating changes in assets, liabilities and equity
3. improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods
4. indicate the amount, timing and probability of future cash flows
The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.
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Cash flow activities
The cash flow statement is partitioned into three segments, namely
1) cash flow resulting from operating activities
2) cash flow resulting from investing activities
3) cash flow resulting...