cash flow

(noun)

The sum of cash revenues and expenditures over a period of time.

Related Terms

Examples of cash flow in the following topics:

  • Introduction to the Statement of Cash Flows

    • The statement of cash flows show the company's ability to change cash flows in future circumstances.
    • The statement of cash flows also reconciles the cash balance from one balance sheet to the next.
    • The cash flow statement includes only inflows and outflows of cash and cash equivalents.
    • The Statement of Cash Flows is composed of three sections:
    • The statement of cash flows shows the liquidity of a company.

  • Importance of Cash Flow Accounting

    • The statement of cash flows provides insight that the balance sheet and income statement do not, particularly in regard to a company's cash position.
    • Cash flow is the movement of money into or out of a business, project, or financial product from operating, investing, and financing activities.
    • Without positive cash flow, a company cannot meet its financial obligations .
    • In addition, management uses cash flow for the following:
    • In addition, cash flow can be used to evaluate the "quality" of income generated by accrual accounting.

  • Preparation of the Statement of Cash Flows: Direct Method

    • There is an indirect and a direct method for calculating cash flows from operating activities.
    • The following is an example of using the direct method for calculating cash flows.
    • Cash flows refer to inflows and outflows of cash from activities reported on an income statement.
    • Once the cash inflows and outflows from operating activities are calculated, they are added together in the "Operating Activities" section of the cash flow statement to obtain the net cash flow for a company's operating activities.
    • Explain the direct method for preparing the statement of cash flows

  • Preparation of the Statement of Cash Flows: Indirect Method

    • Therefore, cash operating expenses were only $80,000.The net cash flow from operating activities, before taxes, would be:Cash flow from revenue: $89,000Cash flow from expenses: $(80,000)Net cash flow: $9,000The indirect method would find these cash flows as follows.Revenue: $125,000Expenses: $(85,000)Net Income: $40,000The adjustments for cash flow would then be made to this amount of net income. $36,000 would be subtracted due to the increase in accounts receivable, and $5,000 would be added due to the increase in accounts payable.
    • The following rules can be followed to calculate cash flows from operating activities:
    • So, depreciation expense is shown (or captioned) on the statement of cash flows.
    • The net cash flow from operating activities, before taxes, would be:
    • Explain how to use the indirect method to calculate cash flow

  • Key Considerations for the Statement of Cash Flows

    • The statement of cash flows highlights the activities that directly and indirectly affect a company's overall cash balance.
    • A cash flow statement provides information beyond that available from other financial statements, such as the Income Statement and the Balance Sheet, through providing a reconciliation between the beginning and ending balances of cash and cash equivalents of a firm over a fiscal or accounting period.The main purpose of the statement, according to the Financial Accounting Standard Board (FASB) is to provide information about the changes of an entity's cash or cash equivalents in the accounting period .
    • It does not predict future cash flows.
    • The statement of cash flows lists all cash inflows and outflows during a reporting period from operating, investing and financing activities.
    • Summarize what items are represented on the statement of cash flows

  • Impairment Measurement

    • Perform a recoverability test is to determine if an impairment loss has occurred by evaluating whether the future value of the asset's undiscounted cash flows is less than the book value of the asset.
    • If the cash flows are less than book value, the loss is measured.
    • The use of undiscounted cash flows in determining impairment loss assumes that the cash flows are certain and risk-free, and the timing of the cash flows is ignored.
    • The expected undiscounted cash flows generated by the machine after the damage are:
    • Since the asset's future undiscounted cash flows are USD 6,000, less than the USD 10,000 book value, an impairment loss has occurred.

  • Relationships Between Statements

    • The four most common financial statements are the balance sheet, income statement, statement of cash flows and the statement of stockholder's equity.
    • The balance sheet reflects a company's solvency and financial position and the statement of cash flows shows the cash inflows and outflows for a company over a period of time.
    • Management is interested in the cash inflows to the company and cash outflows from the company, because these determine the cash the company has available to pay its bills when they are due.
    • The statement of cash flows shows the cash inflows and cash outflows from operating, investing, and financing activities.
    • The statement of cash flows reconciles changes in the cash account from the beginning to the ending balance sheet.

  • Activities of the Business: Financing, Investing, and Operating

    • Under GAAP, operating cash flows include:
    • Non-operating cash flows include borrowings, the issuance or purchase of stock, asset sales, dividend payments, and other investment activity.
    • Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income.
    • As with operating activities GAAP principles dictate how non-operating items are classified on the statement of cash flows.

  • Working Capital Management Analysis

    • A company can be endowed with assets and profitability but short on liquidity if its assets cannot be converted into cash .
    • It is a derivation of working capital commonly used in valuation techniques such as discounted cash flows (DCFs).
    • The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.
    • Working capital management entails short-term decisions, usually relating to the next one-year period and are based in part on cash flows and/or profitability.
    • Cash flows can be evaluated using the cash conversion cycle -- the net number of days from the outlay of cash for raw material to receiving payment from the customer.

  • Cash Controls

    • Cash internal controls is a system used to promote accuracy, prevent theft, and ensure a business has enough cash to pay its debts.
    • Next, you should consider how a business's cash is at risk.
    • Who is responsible for receiving and depositing cash?
    • Who is responsible for giving cash to settle debts?
    • To minimize errors and fraud, the correct information must flow to the right people in a timely manner.