logo

The Statement of Cash Flows

   

Added on  2022-09-14

9 Pages1362 Words19 Views
Statement of Cash Flows
(SFC)

Statement of Cash Flows (SFC)
The statement of cash flows reports the cash inflows and outflows during the
accounting period and the ending cash balance. It is also called a statement
of changes in financial position and is useful to investors and creditors for
several reasons:
 It helps predict the future cash flows of the entity, which may be used to
pay cash dividends, repay outstanding debt, or finance future growth.
 It indicates the ability of the business to generate and properly manage its
cash and working capital resources.
 It provides insights into the company’s financing and investing decisions.
 It transforms the accrual basis of accounting to the cash basis of
accounting.
 It isolates the liquidity condition of the entity. Businesses that do not
generate sufficient cash flows from operations and do not maintain an
adequate level of liquidity, risk receivership or bankruptcy.

Statement of Cash Flows (SCF)
Cash receipts refers to inflows of cash into the company while cash payments
refers to outflows of cash from the business during the accounting period
This movement of cash is divided into three main categories:
 Cash flows from Operating activities;
 Cash flows from Investing activities; and
 Cash flows from Financing activities.
There are two (2) methods-Direct and Indirect method to extract such inflows
and outflows. However, the indirect method is the more commonly used
method and is the one adopted for use in ACCT1002.
Net income is derived from the company’s operating activities and under the
indirect method is the first item reported on the SCF. Bearing in mind that not
all income/expenses are received/paid in cash, some adjustments to net
income must be made to convert the net income figure for the SFC purposes.
The nature of these adjustments/movements will now be explained in details.

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Comprehensive Income 7 Items Included in Other Comprehensive Income 7 Understanding of Items shown under Comprehensive Income 7
|13
|2813
|495

Understanding Cash Flow Statement and its Activities
|5
|750
|264

Foundation in Accounting
|5
|509
|249

The Hospitality Business Toolkit
|12
|4104
|23

Introduction To Accounting | Assessment
|19
|1714
|15

Accounting for Managerial decision making PDF
|15
|2748
|105