Watch here video on Business Accounting topic - Cash Flows Statement.
Cash Flows Statement is one of the four main financial statements. This statement reports:
major sources of cash receipts for the accounting period,
major uses of cash for the accounting period.
Only from Income Statement and Balance Sheet it is not possible to get this information. In the Income Statement we see only profit or loss for the period, in the Balance Sheet we see cash balance and know how it changed comparing to the previous year.
It is important to understand that business can be profitable, but have no cash. This is due to the accrual principle applied, i.e. revenues and expenses are recognized despite the cash receipt or payment.
Considering business accounting topic - structure of Cash Flows Statement, it has three main parts:
Operating activities - receipts of cash or payments of cash related to the main activities of the business
Investing activities - receipt of cash or payments of cash related to the investment activities, such as sale or purchase of plant assets
Financing activities - receipts of cash or payment of cash related to the financing activities, such as receipt or repayment of loans, payment of dividends.
These three parts allow to analyze in more detail cash position of the business and understand whether the business is able to generate enough cash from its main activities.
Watch Business Accounting - Cash Flows Statement video below:
Learn Intermediate Accounting with the new comprehensive video course Accounting Skills In 30 Steps. It includes 30 essential steps you should follow to get accounting knowledge or improve your current one. Also you will have a possibility to practice your knowledge with the exercises and problems included. Watch, listen, practice and learn with Accounting Skills In 30 Steps.
