cash

Examples of cash in the following topics:

• Day-to-Day Needs

  • Operating cash flow refers to the daily cash inflows and outflows generated from business revenues earned, excluding certain costs.
  • Cash inflows come from cash sales of inventory, collection of credit sales, sales of other assets, and funds obtained through credit financing.
  • Cash outflows occur due to cash payment of business expenses, purchase of assets, and payment on debt .
  • "Cash and cash equivalents" on the balance sheet are the most liquid assets found on this statement.
  • Cash flow forecasting or cash flow management is a key aspect of the financial management of a business, because planning for future cash requirements can help to avoid a liquidity crisis in the business.

• 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.

• Defining the Cash Flow Cycle

  • The cash flow cycle measures how long it takes for a firm to recover cash that it invests in ongoing operations.
  • Cash flow cycle also is called "cash conversion cycle" (CCC).
  • The cash conversion cycle refers to the time frame between a firm's cash disbursement and cash collection.
  • The CCC must be calculated by tracing a change in cash through its effect upon receivables, inventory, payables, and finally back to cash, thus, the term cash conversion cycle, and the observation that these four accounts "articulate" with one another.
  • For a cash-only firm, the equation would only need data from sales operations (e.g., changes in inventory), because disbursing cash would be directly measurable as purchase of inventory, and collecting cash would be directly measurable as sale of inventory.

• Cash Flow Factors

  • Cash flow factors are the operational, financial, or investment activities which cause cash to enter or leave the organization.
  • A business's Statement of Cash Flows illustrates it's calculated net cash flow.
  • The net cash flow of a company over a period (typically a quarter or a full year) is equal to the change in cash balance over this period: It's positive if the cash balance increases (more cash becomes available); it's negative if the cash balance decreases.
  • Operational cash flows: Cash received or expended as a result of the company's internal business activities.
  • Financing cash flows: Cash received from the issue of debt and equity, or paid out as dividends, share repurchases or debt repayments.

• 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.

• 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.

• Free Cash Flow

  • Free cash flow (FCF) is cash flow available for distribution among all the securities holders of an organization.
  • In corporate finance, free cash flow (FCF) is cash flow available for distribution among all the security holders of an organization.
  • There are four different methods for calculating free cash flows.
  • Free cash flows = Cash flows from operations - Capital Expenditure ""
  • Even profitable businesses may have negative cash flows.

• Cash Flow from Operations

  • The operating cash flows component of the cash flow statement refers to all cash flows that have to do with the actual operations of the business.
  • Essentially, it is the difference between the cash generated from customers and the cash paid to suppliers.
  • The most noticeable cash inflow is cash paid by customers.
  • It is only when the company collects cash from customers that it has a cash flow.
  • Operating cash flows, like financing and investing cash flows, are only accrued when cash actually changes hands, not when the deal is made.

• Components of the Statement of Cash Flows

  • There can also be a disclosure of non-cash activities.
  • In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.
  • Essentially, the cash flow statement is concerned with the flow of cash in and out of the business.
  • For businesses that use cash basis accounting, the cash flow statement and income statement provide the same information, since cash inflows are considered income and cash outflows consist of expense payments or other types of payments (i.e. asset purchases).
  • Statement of cash flows includes cash flows from operating, financing and investing activities.

• Defining the Statement of Cash Flows

  • A statement of cash flows is a financial statement showing how changes in balance sheet accounts and income affect cash & cash equivalents.
  • In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.
  • Essentially, the cash flow statement is concerned with the flow of cash in and out of the business.
  • International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements.
  • Indicate the purpose of the statement of cash flows and what items affect the balance reported on the statement