Cash flow statement

Provides information on what is a cash flow statement and explanation in relation to day to day accounts.

What is a cash flow statement ?

Cash Flow Statement is also a report card on functioning of the company for some. Cash flow refers to the steady flow of money in and out of an organization, or the amount of cash that a business enterprise earns and holds during the financial period.

Cash Flow doesn’t report the profit & loss of the company and is just an indicator on the movement of cash in an organization and helps in maintenance of day-to-day accounts.

Cash Flow can be segmented in to two major fields i.e. ‘Cash Inflow’ and ‘Cash Outflow’. Lets look at them briefly: -

a) Cash Inflow is the money that flows in to the organization in the form of sales, investments, borrowings and advances.

b) Cash outflow refers to all the money that is paid out in form of procurement costs, operation costs, staff salaries and other miscellaneous expenses

Cash generated out of day-to-day Business operations and Investments are included in the Cash Flow Statement. Lets look at these sections closely

  • Cash from Business Operations: Revenue that is generated from the sale of company’s products or usage of its service on a day-to-day basis makes up for cash from Business operations in the Cash flow statement. Basically it’s the cash that end consumer gives to the company in return of its product or service.

  • Cash from Investments: Organizations also invest in equity shares and various other investment instruments. Cash generated from these activities and also from acquisition of other companies refer to cash from Investments. Some of these activities are also posted as negative cash outflow as to make investments, money flows out of the organization.
  • While Cash Flow Statement aids in everyday accounting, it also helps in monitoring and controlling cash standing of the organization. However it does not given an indication of overall financial health of the organization.