Accounting Concepts: Cash Flow Analysis and Financial Reporting

This report focuses on cash flow analysis and its connection to financial reporting within the framework of accounting concepts. It explains how cash flow statements depict changes in cash equivalents resulting from balance sheet and income statement alterations. The report emphasizes the relationship between the net cash flow for a period, the opening bank balance, and the closing bank balance, demonstrating how these elements are interconnected. It further explains the implications of negative cash flow in operating activities, indicating potential financial challenges for a company, and discusses investing activities, highlighting the outflow of cash associated with long-term asset investments and the need for careful management evaluation of these activities. The report provides a comprehensive overview of how cash flow analysis informs financial decision-making.

Running Head: CONCEPTS OF ACCOUNTING
CONCEPTS OF ACCOUNTING
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Author’s Note

1CONCEPTS OF ACCOUNTING
Answer to question 3.
Cash flow can be best illustrated as the flow of fund that is, inflow and outflow of
cash equivalents within a relevant accounting period. Cash flow is the financial statement that
depicts any change that affects cash equivalents resulting out of any change in the balance
sheet and the income statements. Cash flow also shows the flow of cash individually in three
activities namely operating, financing and investing.
There is an inseparable connection between the net cash flow for the period, the
opening balance of bank and the closing balance of bank account. It can be best explained
with the help of the following equation:
Closing bank balance = Opening bank balance (-/+) net cash flow for the period.
The equation depicts that, the closing bank balance can be derived by adding the
opening bank balance or the balance at the beginning of the period with the net increase of
the cash equivalents.
Particulars Amount ($)
Opening cash and cash equivalent 500
Net increase in cash and cash equivalent 11500
Closing cash and cash equivalent 12000
On the other hand, cash account in the balance sheet depicts cash held on hand as well
as the demand deposits which are used as opening balance of bank in the preparation of cash
flow statement and are added with the net increase in cash equivalents to arrive at the closing
balance. This closing balance finds itself in the balance sheet as cash account, which is used
as the opening balance for the succeeding year in preparation of the cash flow statement.

2CONCEPTS OF ACCOUNTING
Answer to question 4.
Negative cash flow in operating activities means that the revenue earned from the
operating income is less than the expenses incurred in the same. This is bad for the company
as it suggests that the company is losing money or having a poor performance.
Particulars Amount ($)
Cash receipt from customer 5000
Cash paid to supplier -3000
Cash paid to employees -1000
Cash generated from operations (sum) 1000
Interest paid -2000
Income taxes paid -1000
Net cash used in operating activities -1000
Investing activities are those where the company has to invest in certain long term
assets which lead a sufficient amount of return in the future on account of use of such assets.
Investing activities in most cases have a negative balance owing to the purchase of long-term
assets involving outflow of cash. This is not bad for the company as it may reap high return
in the future however, it asks the management to reconsider and check the viability of all
future investing activities.
Particulars Amount ($)
Captal expenditure -5000
Investments -100000
other cash flows from investing activies 500
Net cash used in investing activities -104500