Question

Discuss the Statement of Cash Flows, including the various sections and why this statement is important to the users of the financial statements. Points to consider include how this statement ties to the Income Statement but also why this statement is valuable in its own way beyond the other financial statements discussed.

Answer 1

Cash flow statements ia financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents.

Various sections : Operating, investing, and financing activities.

Operating activities include the production, sales and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising, and shipping the product.

Examples of Investing activities ar Purchase or Sale of an asset (assets can be land, building, equipment, marketable securities, etc.), Loans made to suppliers, Payments related to mergers and acquisition.

Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income. Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement.

Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.