Cash Flow Statement: Definition, Components, and Methods of Making a Cash Flow Statement

cash flow statement

The cash flow statement has a very important impact on your business. As a business person, you must understand cash flow, not just an accountant. So, studying cash flow is important for all business people.

With a cash flow statement, you will find out the condition of your company in a profit or loss condition. Usually, this cash flow statement contains the company's cash income and expenditure in a certain period. Before you know how to make a cash flow statement, you need to understand what things are in cash flow.

What is Cash Flow?

Cash flow or cash flow is a breakdown that shows the amount of income and expenses in a certain period. The cash flow in business and family finances is slightly different. If the family finances the cash flow in question is cash basis. Meanwhile, in business finance, there are cash basis and accrual basis. The cash flow statement usually includes the amount of cash received. Examples include cash investment and cash income, and the amount of cash the company spends.

Purpose of the Cash Flow Statement

The purpose of the cash flow statement itself is to present information about cash receipts and payments in an accounting period. Apart from being beneficial for the company, the cash flow statement also has benefits for investors, creditors, and others. With a cash flow statement, you can assess the following.

1. The Entity's Ability to Generate Cash Flow

The cash flow statement is considered better than actual data. With a cash flow statement, you can make predictions about the ability of a company's entity to generate cash flows in the future.

2. Investment & Cash Transaction Transactions

The number of assets and liabilities can change due to certain factors. With an examination of investment and funding transactions, you can find out the causes of changes in the two accounts.

3. Entity's Ability to Pay Dividends and Liabilities

With a cash flow statement, the company can ascertain the amount of cash to pay some obligations. For example, employee salaries, debt payments, and pay dividends (profit sharing to shareholders). Besides, with a cash flow statement, investors can see an overview of cash flows in your company's business activities.

4. Information on the Difference between Net Income & Net Cash Figures

Information on net income is needed by parties who use financial statements. With the existence of net income data obtained by the company, it can be seen the extent of its success and failure.

Cash Flow Statement Components

There are 3 components to a cash flow report, namely:

1. Cash Flows from Operating Activities

Cash flows from operating activities are cash flows that come from transactions that come from the activities themselves. Usually, this transaction is in the form of company income or expenses. Examples are transactions that include receiving money from consumers, paying debts, employee salaries, paying taxes, and so on.

2. Cash Flows from Investing Activities

Cash flow from investing activities is cash flow in the form of income or expenditure. Generally, this cash flow that affects investment in non-current assets is the cash flow from investing activities. This investment activity is related to the activity of selling or buying company assets. Examples include transactions that include the sale and purchase of fixed assets such as equipment and buildings.

3. Cash Flows from Financing Activities

Usually, cash flow from financing activities comes from transactions that affect the company's debt and equity. These are generally transactions that involve the issuance or discontinuation of equity and debt securities. Examples are the sale of bonds, payment of dividends, issuance of shares, and repayment of credit from banks.

Method of Making a Cash Flow Statement

There are two (2) methods of reporting cash flow (cash flow), which is as follows.

1. Indirect Method

In this method, how to make a cash flow statement is prepared with 3 (three) elements. First, namely the cash element of business activities that are placed at the top. After that, the elements of cash flow from investing activities and cash flows from financing activities.

To make a cash statement, two sources of data are needed, namely:

Income statement from the current period
Period balance from the current period with the balance of the previous period

2. Direct Method

In the direct method, the preparation of a cash flow statement is based on the cash/bank book. To use this method, you must report the groups of cash receipts and disbursements from the company's operations. After that, it was continued with investment and financing activities. For more details, here is an example of a cash flow statement using the direct method.

0 Response to "Cash Flow Statement: Definition, Components, and Methods of Making a Cash Flow Statement"

Post a Comment

Iklan Atas Artikel

Iklan Tengah Artikel 1

Iklan Tengah Artikel 2

Iklan Bawah Artikel