Question

Discuss the importance of reporting the transactions of cash flows in the correct period for a cash based business.

Answer 1

Cash flow report is the amount of money coming into a business and the amount of money going out. The cash flow report is importance of reporting the transactions of cash flows in the correct period for a cash-based business because it informs the reader of the business cash position. For a business to be successful in every time , it must have sufficient cash balance at all times. It needs cash to pay its variety expenses, to pay bank loans, to pay taxes and to purchase new assets. A cash flow report determines whether a has enough cash to do exactly business.

Having cash is a key requirement for a business to be solvent. When a business has no longer enough cash to pay its dues, it may declared bankrupt.

For this introduction to accounting we will not go through the actual preparation of an real cash flow report. In fact in the business world, small businesses rarely prepare a cash flow report, as profit and loss report is sufficient for their needs. It is unlikely that a small business will involve complex non cash transactions that would warrant such information