Cash Flow Statement:
Cash flow statement does not include amount of future cash dealings that are on credit. Cash is not same as net income in income statement and balance sheet. There are 3 types of business activities regarding cash dealings. operating , investing and financing activities.
Methods of Cash flow statement:
There are 2 basic methods to make cash flow statements;
There are 2 basic methods to make cash flow statements;
- Direct Method.
- Indirect Method.
Operating Activities:
Cash inflows and outflows by business operations. Operating activities shows how much cash is generated from products or services of the business. Changes in cash, account receivable, depreciation, account payable etc are shown in cash from operating activities.
---> Cash flow is calculated by adjusting net income by adding or subtracting differences in revenues, expenses and credit dealings resulting from transactions from one period to the next.
---> These adjustments are made because of non-cash items in net income and total assets and liabilities.All transactions does not include cash, many items have to be revised when calculating cash flow.
---> Depreciation is added back in net sales. When the asset is sold the income is iincluded in the cash inflow.
---> Changes in accounts receivable in balance sheet from one period to the next is also included in cash flow statement. If accounts receivable decreases, this shows that more cash is entered from credit accounts, the amount by which account receivable has decreased is added to net sales.
--->If accounts receivable increase from one period to the next, the amount of the increase is subtracted from net sales because, the amount in accounts receivable is revenue and are not cash.
---> An increase in inventory, shows that a company has purchased more raw materials inventory. If the inventory purchased with cash, the increase in inventory is subtracted from net sales.
---> A decrease in inventory will be added to net sales. If inventory was purchased on credit, an increase in accounts payable will be shown on the balance sheet and amount of the increase from one period to the other will be added to net sales.
---> Expenses, for example taxes payable, salaries payable and prepaid insurance. If paid, then the difference in the value from one year to the next has to be subtracted from net income.
--->If there is an amount that is still to be paid, then any differences will have to be added to net earnings.
Investing Activities:
Changes in equipment, assets or investments related to cash flow from investing.
--->Cash changes from investing are due to purchase of new equipment, buildings or other assets that are short term such as marketable securities.
--->When a company sale an asset, the cash inflow occurs.
Financing activities:
Changes in debt, loans or dividends are cash flow from financing activities.
---> Changes in cash from financing activities are when the capital is increased, it is cash inflows.
---> When dividends are paid, this is cash outflows.
--->If a company issues a bond to the public, the company receives cash.
--->When interest is paid to public, the company is reducing its cash.
Cash inflows and outflows by business operations. Operating activities shows how much cash is generated from products or services of the business. Changes in cash, account receivable, depreciation, account payable etc are shown in cash from operating activities.
---> Cash flow is calculated by adjusting net income by adding or subtracting differences in revenues, expenses and credit dealings resulting from transactions from one period to the next.
---> These adjustments are made because of non-cash items in net income and total assets and liabilities.All transactions does not include cash, many items have to be revised when calculating cash flow.
---> Depreciation is added back in net sales. When the asset is sold the income is iincluded in the cash inflow.
---> Changes in accounts receivable in balance sheet from one period to the next is also included in cash flow statement. If accounts receivable decreases, this shows that more cash is entered from credit accounts, the amount by which account receivable has decreased is added to net sales.
--->If accounts receivable increase from one period to the next, the amount of the increase is subtracted from net sales because, the amount in accounts receivable is revenue and are not cash.
---> An increase in inventory, shows that a company has purchased more raw materials inventory. If the inventory purchased with cash, the increase in inventory is subtracted from net sales.
---> A decrease in inventory will be added to net sales. If inventory was purchased on credit, an increase in accounts payable will be shown on the balance sheet and amount of the increase from one period to the other will be added to net sales.
---> Expenses, for example taxes payable, salaries payable and prepaid insurance. If paid, then the difference in the value from one year to the next has to be subtracted from net income.
--->If there is an amount that is still to be paid, then any differences will have to be added to net earnings.
Investing Activities:
Changes in equipment, assets or investments related to cash flow from investing.
--->Cash changes from investing are due to purchase of new equipment, buildings or other assets that are short term such as marketable securities.
--->When a company sale an asset, the cash inflow occurs.
Financing activities:
Changes in debt, loans or dividends are cash flow from financing activities.
---> Changes in cash from financing activities are when the capital is increased, it is cash inflows.
---> When dividends are paid, this is cash outflows.
--->If a company issues a bond to the public, the company receives cash.
--->When interest is paid to public, the company is reducing its cash.
No comments:
Post a Comment