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ACC 557 Week 9 DQ 2 Use of Cash Flows Statements

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ACC 557 Week 9 DQ 2 Use of Cash Flows Statements
Week 9_DQ 2 Use of Cash Flows Statements
Assess what information may be revealed about the sustainability of a company by review
and analysis of a company’s statement of cash ows that may not be revealed in the balance sheet
or income statement. Provide support for your rationale.
Create an argument indicating that the statement of cash ows contains the most valuable
information related to a company’s performance for users of nancial statement information.
Provide support for your argument.
Cash flow can be broadly defined as cash inflow net of cash outflow, Investment in Fixed Assets, funds
raised during the year etc. Cash flow statement comprises of three parts which are as follows:-
Cash flow from operations
Cash flow from investing activities
Cash flow from financing activities
Cash flow can be broadly defined as cash inflow net of cash outflow. “Cash is king”, “Cash is lifeblood
of the business” these are few phrases used in the financial markets to represent the importance of cash
flow in the business, even the listing agreement of stock exchange’s which are signed by the companies
in order to get their stock listed includes a condition that company should also provide cash flow
statement to its investors with its annual statements which means it is compulsory for every listed entity
to prepare cash flow statement. It is not only out of compulsion that companies prepare cash flow
statement but it is also beneficial for the companies to prepare cash flow statements because it helps
companies to analyze various things such as difference between net profit and cash flow from
operations, increase in inventory which may represent production of slow moving inventory in
abundance etc.

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All the financial statement are prepared on accrual basis as per the current accounting standards,
whereas cash flow statement is prepared on the basis of cash flows and not accrual system of
accounting, this is the major difference between cash flow statement and other financial statements.
Statement of cash flow shown the net cash provided by different activities i.e. cash flow from
operations, cash flow from investing activities and cash flow from financing activities.
Cash flow statement helps in determining the sustainability of company by analyzing its actual cash
position, if the cash provided by operating activities are consistently negative than there are chances that
company is making huge losses and there may be a chance that company will end up soon. It is easy to
manipulate the cash flow statement by posting bogus entries but it is very difficult to manipulate the
cash flow statement because cash flow statement is prepared on cash basis and it is difficult to
manipulate the same.
Any activity can be termed as source of cash if it results in positive cash inflow and any activity which
leads to negative cash flow will termed as use of cash. Now the reason why any activity leads to positive
cash flow or negative depends upon the activities of the company. If company sells any of its investment
then it will lead to positive cash flow from investing activities and on the other hand if the company
buys any fixed asset then it will lead to negative cash flow. Similarly if any activity of the company
results in outflow of cash then it is termed as negative cash flow (use of cash) and any activity which
results in inflow of cash is termed as positive cash flow (source of cash). Consistent negative cash flow
is a signal of failure of the company whereas positive cash flow always signifies better performance of
the company.
By the help of cash flow from operating activities section of cash flow statement investors can easily
analyze the difference between the cash flow from operating activities and the net profit and gain from
the business. Sometimes the financial statements shows net negative result but cash flow statement
shows positive cash inflow during the period, this might occur due non cash expenditure such as
depreciation, amortization etc. in order to evaluate the company its cash flows plays significant roll it
shows the liquidity and solvency of the company.
Cash flow statement helps managers to analyze the different element of cash flow statement and then
take decisions and make strategies. Operating section of cash flow statement shows the net cash flow

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ACC 557 Week 9 DQ 2 Use of Cash Flows Statements Week 9_DQ 2 Use of Cash Flows Statements Assess what information may be revealed about the sustainability of a company by review and analysis of a company's statement of cash flows that may not be revealed in the balance sheet or income statement. Provide support for your rationale. Create an argument indicating that the statement of cash flows contains the most valuable information related to a company's performance for users of financial statement information. Provide support for your argument.? Cash flow can be broadly defined as cash inflow net of cash outflow, Investment in Fixed Assets, funds raised during the year etc. Cash flow statement comprises of three parts which are as follows:- Cash flow from operations Cash flow from investing activities Cash flow from financing activities Cash flow can be broadly defined as cash inf ...
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