What is the purpose of a statement of cash flows?

One purpose of the statement of cash flows is that users of the financial statements can see the amount of cash inflows and outflows during a year in addition to the amount of revenue and expense shown on the income statement. This is important because cash flows often differ significantly from accrual basis net income.

Why is cash flow analysis important?

Identifying Financial Trends: By comparing cash flow statements over different periods, stakeholders can identify trends and patterns in a company’s cash flow dynamics. This analysis enables them to assess the overall financial performance and stability of the business.

What is a cash flow statement (CFS)?

The cash flow statement (CFS), is a financial statement that summarizes the movement of cash and cash equivalents (CCE) that come in and go out of a company. The CFS 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.

How do you prepare a cash flow statement?

To prepare a cash flow statement, several steps need to be followed. First, gather the necessary financial information, such as the income statement, balance sheet, and supporting documents. Then, classify each cash flow item into one of the three sections: operating activities, investing activities, or financing activities.