Purpose
| Statement of Cash Flow - Simple Example for the period 01/01/2006 to 12/31/2006 |
|
|---|---|
| Cash flow from operations | $4,000 |
| Cash flow from investing | ($1,000) |
| Cash flow from financing | ($2,000) |
| Net cash flow | $1,000 |
| Parentheses indicate negative values | |
The cash flow statement was previously known as the flow of Cash statement. The cash flow statement reflects a firm's liquidity.
The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time, and the income statement summarizes a firm's financial transactions over an interval of time. 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 includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a few. The cash flow statement is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activities. Non-cash activities are usually reported in footnotes.
The cash flow statement is intended to
- provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances
- provide additional information for evaluating changes in assets, liabilities and equity
- improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods
- indicate the amount, timing and probability of future cash flows
The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.
Read more about this topic: Cash Flow Statement
Famous quotes containing the word purpose:
“To me the sole hope of human salvation lies in teaching Man to regard himself as an experiment in the realization of God, to regard his hands as God’s hand, his brain as God’s brain, his purpose as God’s purpose. He must regard God as a helpless Longing, which longed him into existence by its desperate need for an executive organ.”
—George Bernard Shaw (1856–1950)
“Language, the machine of the poet, is best fitted for his purpose in its rudest state. Nations, like individuals, first perceive, and then abstract. They advance from particular images to general terms. Hence the vocabulary of an enlightened society is philosophical, that of a half-civilised people is poetical.”
—Thomas Babington Macaulay (1800–1859)
“Possibly the Creator did not make the world chiefly for the purpose of providing studies for gifted novelists; but if he had done so, we can scarcely imagine that He could have offered anything much better in the way of material ...”
—Elizabeth Stuart Phelps (1844–1911)