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Topic 5: Statement of Cash Flows - Coggle Diagram
Topic 5: Statement of Cash Flows
Role
Forecast future cash flows
Evaluate management decisions
Determine the ability to pay dividends to stockholders' and payments to creditors
Show the relationship of net income to the business's cash flows
Accrual accounting:
A report dedicated to cash movements, the statement of cash flows, instead shows the actual receipts and payments of cash during the account period which provides valuable insight into business decisions.
Specifics
Shows money received and spent during period
The difference between total receipts and total payments is shown as the "net cash flow"
Net cash flow= -/+
Format
Similar to cash budget, but considers
actual
cash flows and is classified in three main sections
Investing:
Relate only to acquisition and disposal of non-current assets
Financing:
Relate to changes in non-current liabilities and equity
Operating:
Normal day-to-day activities
Opening cash balance (found in balance sheet) added to net cash flow
Closing balance (calculated in the statement of cash flows, but must match the cash amount in the current period's balance sheet) represents the final line of the report
Ways to improve cash flows
Short term
Holding less current assets and selling unused non-current assets may assist
Current liabilities increased to postpone cash outflows
Long term
Borrowings or additional capital may assist
Postponing the purchase of non-current assets where possible