Question

What is the relation between Classification of Cash Flows and the Balance Sheet?

Answer 1

There is good relationship between the cash flow statement and Balance sheet.

The Opening balances of cash flow statement always shows the amount of Year Beginning balance sheet and the closing balance i.e which is outcome of cash flow statement always shows the The amount of closing balance sheet of cash.

The cash Flow statement always help to analyse the aspect of how much cash is available in hand in order to repay the debts and Invest the portion of funds and Help to plan the investments and formulating the Budgets and their plans However in case of Balance sheet it shows entire view of status of enterprise, if the assets increases by year to year which results in business is growing gradually by taking the risk. Both of these, such as cash flow statement and Balance Sheet , help in analysis and decision making in both immediate or long term strategies of the enterprises.

Some of the Investors mostly consider the cash flow statement because they want to analyse , and know before pouring their funds , whether the enterprise is able to generate the sufficient cash in order to pay the debts due and Some of the investors purely depends on the Balance sheet in order to invest their funds.

Cash Flow statement help the management whether to raise the funds in order to meet the expected debts due , and meet to pay the operating expenses However the balance sheet show , helps in analysing , how the finance to be raised whether through common stock by using retained earnings in balance sheet or preferred or debentures and bonds ,all these depends on the financial position of the balance sheet and mostly depends on the retained earnings. Because it is the results of Years of Incomes.

Cash flow Statement always help in formulating cash Budget and Balance sheet helps in formulating the Inventories and Assets Budgets.