Question

The accrual basis of accounting creates the need for a statement of cash flows.’’ Do you agree? Please explain your position. Please also discuss cash from operations, investing and financing activities, and the conversion of net income to cash from operations.

Answer 1

A cash flow statement is a financial statement that summarizes . the amount of cash and cash equivalents entering and leaving a company. The cash flow statement measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses.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 is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activity

Cash flow from operating activity:- The operating activities on the CFS include any sources and uses of cash from business activities. In other words, it reflects how much cash is generated from a company's products or services.

Cash From Investing Activities:-

Investing activities include any sources and uses of cash from a company's investments. A purchase or sale of an asset, loans made to vendors or received from customers, or any payments related to a merger or acquisition is included in this category. In short, changes in equipment, assets, or investments relate to cash from investing.

Cash flow from financing activity :- Cash from financing activities includes the sources of cash from investors or banks, as well as the uses of cash paid to shareholders. Payment of dividends, payments for stock repurchases, and the repayment of debt principal (loans) are included in this category.

the conversion of net income to cash from operations :-

Net cash flow from operating activities is calculated as the sum of net income, adjustments for non-cash expenses and changes in working capital. However, certain items are treated differently on the cash flow statement than on the income statement.