Concept Of Cash Flow Statement And Its Objectives

Concept Of Cash Flow Statement

Every big and small firms performs cash transactions. Cash transaction refers to cash inflows and outflows.Cash inflows and outflows help to review success, failure of a firm and its ability to meet maturing debts. Such review and evaluation are possible if the statement of cash flow is prepared.Accounting standard Board(ASB) at international level in 1996 suggested every firm to publish the statement of cash flow along with the final accounts. Since then the statement of cash flow is getting more recognition than funds flow statement.

The statement that shows cash inflows and outflows of a firm for a specified period is called the cash flow statement. Cash flow statement demonstrates where the cash has come during the period and what the firm has done with the available cash. Therefore, cash flow statement shows a picture of cash movement occurred in and out from a firm during a year in a summarized form. Cash flow statement gives a picture of sources and applications of cash of a firm for a year.

The cash flow statement is not a cash book because it demonstrates inflows and outflows of cash and near to cash items. Cash and near to cash cover entire items of current assets and current liabilities. The cash flow statement reports increase and decrease in cash by listing in meaningful categories in terms of operating,investing and financing activities.

Objectives Of Cash Flow Statement

1. To provide information about the cash inflows and cash outflows from operating, financing and investing activities of the firm.

2. To show the impact of the operating, financing and investing activities on cash resources.

3. To tell how much cash came in during the period, how much cash went out and what the net cash flow was during the period.

4. To explain the causes for changes in cash balance.

5. To identify the financial needs and help in forecasting future cash flows.