What is a cash flow statement?
The term cash flow means the inflow and outflow of cash. It arises when there is an increase and decrease in cash and cash equivalents. Cash flow statement is prepared for the periods for which financial statements are presented. The ultimate purpose of preparing this statement is to find the reasons for the net flow that is the difference between opening and closing balance of cash and cash equivalents.
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Disclosures of Cash flow-
- Cash flow from Operating Activities
- Money Flow from Investing Activities
- Fund Flow from Financing Activities
Objectives of Cash Flow Statement-
- To find out the sources of cash and cash equivalents from which cash is being generated. Sources can be operating, investing, and financing activities.
- To determine specific uses for which an enterprise used cash and cash equivalents.
- To determine the net change in cash and its equivalents that shows difference between total sources and total uses between the dates of two balance sheets.
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Uses of Cash Flow Statement
There are many uses of this statement. Some of them are as follows-
- It helps in managing the cash properly. It helps in planning the proper utilisation of cash when there is surplus.
- It helps in evaluating the changes in net
- It enables the users to estimate capability of an enterprise to generate cash.
- It is a tool which gives answers to many financial questions.
- Information provided by such statement is useful for investors, creditors and other users who want to know financial position of their enterprise.
- It helps in finding ability of their enterprise to pay dividends.
Limitations of Cash Flow Statement
We have already discussed the uses of cash flow statement, but there are some limitations as well. They are-
- It ignores important non-cash transactions.
- It is a secondary data based statement.
- It is based on history.
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Difficulties faced by students in preparing cash flow statement-
- Students often face problems in classifying the items as operating, investing and financing activities.
- They get confused in the separate disclosure of few items. We ensure proper guidance and provide best Cash Flow Statement assignment help to them.
- It is difficult for them to present the statement properly and clearly.
- They often face difficulties in understanding the additional information given at the end of the sum.
- Sometimes students unable to analyse the changes in non-current assets.
- Students fail to maintain the proper format of cash flow statement.
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