Statement of Cash Flows Project
Amanda and Michael 2A
What is a statement of Cash Flows?
The definition of the statement of cash flows is; shows a company's cash flows, which indicates the ability of a company to pay its debts and pay dividends. The cash flow goes in two directions, inflow into the business, and outflow which goes out of the business. It has three parts to it. They are operating activities, financing activities, and investing activities.
Why is the statement of cash flows important?
A statement of cash flows is vital to a business because it shows where the cash came from and where it will go, and whether there is a net increase or net loss. It shows if the business is running out of money, if the owners are taking out too much money, it shows how much money was used to purchase items such as property, and it shows how long term payments like loans, affect the businesses cash flow.
Cash Flows from Operating Activities
These are normal business transactions that occur during the accounting period and affect the net income or loss of the period. The accounts included are sales, merchandise purchases operating expenses, and more.
Cash Flows from Financing Activities
These are the borrowing activities needed to pay for the company's debts. Cash inflows for this would be issuing stock in the company, and outflows are paying dividends to the stockholders.
Cash Flows from Investing Activities
These cash flows account for the changes in the long term asset accounts' balances. Equipment, vehicles, furniture, buildings, and land accounts are all affected by these activities.