🔥 RELATIONSHIP BETWEEN FINANCIAL STATEMENTS [PART : 3] 🔥

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ALL ABOUT ACCOUNTING : 48th BLOG

         💎ACCOUNTING💎

★ Accounting exercise and practices : 
Lesson : 5 [Part : 3]

Hi friends 🙏

Today's discuss remaining part of Relationship between Financial Statements. 

                             So let's discuss ....

* RELATIONSHIP BETWEEN FINANCIAL STATEMENTS :

 ★ THE CASH FLOW STATEMENT : 

Cash flow is the net amount of cash that an entity receives and disburses during a period of time. A positive level of cash flow must be maintained for an entity to remain in business, while positive cash flows are also needed to generate value for investors. The time period over which cash flow is tracked is usually a standard reporting period, such as a month, quarter, or year. Cash inflows come from the following sources:

Operations. This is cash paid by customers for services or goods provided by the entity.

Financing activities. An example is debt incurred by the entity.

Investment activities. An example is the gain on invested funds.

Cash outflows originate with the following sources:

Operations. This is expenditures made as part of the ordinary course of operations, such as payroll, the cost of goods sold, rent, and utilities.

Financing activities. Examples are interest and principal payments made by the entity, or the repurchase of company stock, or the issuance of dividends.

Investment activities. Examples are payments made into investment vehicles, loans made to other entities, or the purchase of fixed assets.

An alternative way to calculate the cash flow of an entity is to add back all non-cash expenses (such as depreciation and amortization) to its net after-tax profit, though this approach only approximates actual cash flows.

Cash flow is not the same as the profit or loss recorded by a company under the accrual basis of accounting, since accruals for revenues and expenses, as well as for the delayed recognition of cash already received, can cause differences from cash flow.

A persistent, ongoing negative cash flow based on operational cash flows should be a cause of serious concern to the business owner, since it means that the business will require an additional infusion of funds to avoid bankruptcy.

A summary of the cash flows of an entity is formalized within the statement of cash flows, which is a required part of the financial statements under both the GAAP and IFRS accounting frameworks.




Remaining part of  Relationship between financial statements discuss in 49th blog... 

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