A Cash Flow Statement is a financial document that outlines the cash inflows and outflows from operating, investing, and financing activities. It reveals a company's liquidity, investment strategies, and financial operations. The statement also shows the impact of balance sheet changes on cash flow and the importance of converting accrual to cash basis for accurate financial analysis.
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A financial report that tracks the flow of cash into and out of a business during a specific time frame
Operating Activities
Tracks cash effects of transactions that create revenues and expenses
Investing Activities
Involves acquisition and disposal of long-term assets and other investments
Financing Activities
Includes transactions with creditors and owners, such as issuing debt or equity and paying dividends
Essential for evaluating a company's liquidity, financial stability, and capacity to generate cash for operations and growth
Divided into three primary segments: Operating Activities, Investing Activities, and Financing Activities
Lists all major operating cash receipts and payments, providing a straightforward view of cash flows from operating activities
Starts with net income and adjusts for non-cash transactions and changes in balance sheet accounts
Changes in balance sheet accounts, such as inventory or accounts payable, have a direct impact on the Cash Flow Statement
Adjustments are made to convert net income from the accrual basis of accounting to the cash basis, which records transactions when cash is exchanged
Essential for accurately representing a company's cash flow, as the accrual basis of accounting may not coincide with cash transactions
Begins with net income from the income statement
Adjusts net income for non-cash items and changes in working capital
Records cash flows associated with the purchase and sale of long-term assets
Includes transactions involving debt, equity, and dividends
Reveals the overall financial health and cash management of the company
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Purpose of Cash Flow Statement
Tracks cash inflow/outflow over time; assesses liquidity, stability, cash generation for operations/growth.
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Operating Activities Definition
Includes transactions affecting net income, such as cash from sales and cash paid for expenses.
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Difference Between Investing and Financing Activities
Investing involves long-term assets/investments; financing deals with debt/equity transactions and dividends.
