IA Cash Flow Statement

Support Maine idea

• History of cash flow statement
• Definition of cash flow statement
• Purpose statement of cash flow
• Users of cash flow statement
• Limitation of cash flow statement
• Sections of cash flow statement (activities)
• Preparation
• Example
• Conclusions
• Another substitute title

History of cash flow statement

In 1971, the (FASB) defined rules that made it mandatory under (US GAAP) to report sources and uses of funds, In 1987, FASB Statement No. 95 (FAS 95) mandated that firms provide cash flow statements

In 1992, the International Accounting Standards Board issued (IAS 7), Cash Flow Statement, which became effective in 1994, mandated that firms provide cash flow statements.

Definition of cash flow statement

A cash flow statement is a financial report that describes the sources of a company's cash and how that cash was spent over a specified time perio

Purpose

• provide information on a firm's liquidity and solvency .
• provide additional information for evaluating changes in assets, liabilities and equity improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods
• indicate the amount, timing and probability of future cash flows.
• Users of cash flow statement
• Executives want to know if the cash generated by the company will be sufficient to fund their expansion strategy
• Stockholders want to know if the firm is generating enough cash to pay dividends
• Suppliers want to know if their customers will be able to pay if offered credit
• Investors want to evaluate future growth potential
• Employees are interested in the overall viability of their employer as indicated by its ability to fund its operations

Limitation of cash flow statement

• Classification of cash flows among operating, investing, and financing
• Cash flows involving Property Plant and Equipment
• Differences due to some accounting methods
• Interest and dividends received
• Interest paid
• Non-cash transactions