cash

Examples of cash in the following topics:

• Introduction to the Statement of Cash Flows

  • The money coming into the business is called cash inflow, and money going out from the business is called cash outflow.
  • 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 statement of cash flows is cash based and it shows the actual inflows and outflows of cash for the given month.
  • The cash flow statement includes only inflows and outflows of cash and cash equivalents.

• 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.
  • Without positive cash flow, a company cannot meet its financial obligations .
  • Management is interested in the company's cash inflows and cash outflows because these determine the availability of cash necessary to pay its financial obligations.
  • In addition, management uses cash flow for the following:
  • A company can fail because of a shortage of cash even when it is profitable.

• Reporting Cash

  • Cash and cash equivalents are reported in the current asset section of a business's balance sheet.
  • When the company's cash balance is reported on its balance sheet, all of those accounts are combined into one "cash" line item.
  • While the balance sheet may combine all cash and cash equivalents into one number, a business can provide further detail about its cash balance in the footnotes to the financial statements.
  • With regards to cash, the footnotes can explain how much of the cash balance was composed of actual currency and how much was cash equivalents.
  • Cash and cash equivalents are reported on the balance sheet.

• What Is Cash?

  • Cash and cash equivalents are the most liquid type of company assets used by businesses to settle debts and purchase goods.
  • Cash is the most liquid of all company assets.
  • Cash is generally any currency a business owns.
  • Cash equivalents are also generally included with cash on a business's financial statements.
  • Define the role cash or cash equivalents play within a business

• Preparation of the Statement of Cash Flows: Direct Method

  • Cash flows refer to inflows and outflows of cash from activities reported on an income statement.
  • Cash outflows occur when operational assets are acquired, and cash inflows occur when assets are sold.
  • The direct method for calculating this flow involves deducting from cash sales only those operating expenses that consumed cash.
  • In this method, each item on an income statement is converted directly to a cash basis, and each cash effect is directly reported.
  • 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.

• Differences Between Accrual-Basis and Cash-Basis Accounting

  • Accrual accounting does not record revenues and expenses based on the exchange of cash, while the cash-basis method does.
  • The cash method of accounting recognizes revenue and expenses when cash is exchanged.
  • The cash model is acceptable for smaller businesses for which a majority of transactions occur in cash and the use of credit is minimal.
  • For example, a landscape gardener with clients that pay by cash or check could use the cash method to account for her business' transactions .
  • The cash-basis method, unlike the accrual method, relies on the receipt and payment of cash to recognize revenues and expenses.

• 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.
  • The statement shows historical changes in cash and cash equivalents rather than working capital.
  • 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

• Types of Cash

  • Types of cash include currency, funds in bank accounts, and non-risky financial instruments that are readily convertible to cash.
  • Cash and cash equivalents are not just the amount of currency that a business has in its cash registers and bank accounts; they also include several different types of financial instruments.
  • Cash equivalents can also include government and corporate bonds, marketable securities and commercial paper.
  • Other investments and securities that are not cash equivalents include postage stamps, IOUs, and notes receivable because these are not readily converted to cash.
  • A CD may be a "cash equivalent" if it meets certain criteria.

• Preparation of the Statement of Cash Flows: Indirect Method

  • The indirect method starts with net-income while adjusting for non-cash transactions and from all cash-based transactions.
  • Therefore, cash collected from these revenues was $89,000.
  • Also, in the indirect method cash paid for taxes and cash paid for interest must be disclosed.
  • Therefore, cash collected from these revenues was $89,000.
  • Therefore, cash operating expenses were only $80,000.

• 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.
  • Are large amounts of cash kept where employees have access to it?
  • Who is responsible for receiving and depositing cash?
  • Who is responsible for giving cash to settle debts?