Foundation of any business is money. Making money is the motto of every enterprise. In financial terms, profit generation is the agenda behind the foundation of the firm. It is essential to record the in and out of cash to make the company financially stable. Cash flow statement meaning homework answers brings the fundamental understanding about cash flow statement in this written piece.
What does the cash flow statement show?
The most important financial declaration of any firm is cash flow statement. It represents the generated cash during the decided period of time. In an enterprise from where the money in entering and where is it being spent can be know from the statement of cash flow.
Why is the statement of cash flow necessary in a firm?
There are some reasons for the given statement generation, and cash flow statement meaning homework answers will throw lights on important reasons.
- It is different from the income statement.
Income statement may or may not cover all the expenses listed or the revenue written in the income statement is may not be generated because income statement is based on the accrual accounting. Whereas, the cash flow document can give the full insights about money of the company.
- It can deduce the strength of the enterprise.
Investors are looking for the business which is succeeding. And the only way to know if the business is making money or not is analysing the statement of the cash flow.
If the cash is there in the cash flow statement, a company is likely to have more shares by buy back from the market and have more profit by getting another group of enterprises as well. The growth can be seen from the cash flow statement. So, investors depend for the information on the most valuable financial statement.
- Some economic models rely on the how cash is moved around in the business. So for the development of financial models, cash flow statement is beneficial.
Let’s learn how to derive cash flow with cash flow statement meaning homework answers.
The structure of cash flow statement is divided into parts. Now, that you have fairly good understanding of what the cash flow statement is, it is time to know how the cash flow statement is created.
- Operation activity involving money in the company
- Investment of money
- Financial activities associated with money of the firm
- Other information
Operations of the company:
The core activities of the enterprise can be considered in this section.Â Any daily routine maintenance of company for manufacturing of the product or provide a service to the client is core business operation.
- For example, Depreciation value
Let’s take an example of a company who uses the heavy vehicle in their daily activities to deliver the products. The vehicle being used every day may be purchased years ago. But, the value of the vehicle will be decreased as per its usage. So, the depreciation cost will be deducted in the statement. Although depreciation is not cash, it will be subtracted from the net profit.
- Raw Materials for daily production
Materials for manufacturing the product are purchased, and the cost of it is deducted from net profit.Similarly, the changes in cash flow statement will make changes by an increase or decrease the amount of inventory, supplies, prepaid insurance, wages and so on.
Money provided or received as a part of the investment activities of the business
There are times in the company when the company is not ready to do any maintenance of an asset. At that point, the company will have two possibilities as explained by cash flow statement meaning homework answers.
- Invest the cash of company and make a purchase of the new asset and reflect that in cash flow statement. This scenario is known as ‘cash out’.
- Get rid of the old asset and make money by divesting the asset. This type of activity will be referred as ‘cash in’.
Changes in cash flow of company by financing activities
All the stock related changes will be covered in this part of money flow statement.
- For example, the modification of the dividend of the shares. When a firm pays the interest amounts to the stakeholders, it is reducing its cash from the cash flow. It will also be considered as cash out.
- Similarly, payable bonds, treasury stock, will be under the financial changes. Any activity of money borrowing or lending will be labelled as financial changes of the company in the cash flow statement as mentioned by cash flow statement meaning homework answers.
Other information included in the cash flow statement
- The changes made in the part of the balance sheet will show its effect on the cash flow statement as well.
- Equity of stockholders will be reflected in the declaration of cash flow.
- Long-term liability and asset changes from the balance sheet will have an impact upon cash flow statement.
- Present liability and property will also have a record in cash flow statement.
Apart from all the information deduced from the cash flow statement, the company use this essential statement to predict the future of the enterprise. With the adjustment of liabilities, assets and Revenue Company can control the financial health in better ways. Cash flow statement meaning homework answers explains the most important financial document in the best possible way that any entrepreneur or student can incorporate it into practice.