Cash Flow Statements

Statement of Financial Position and Income Statement

A balance sheet or statement of financial position is a financial statement that shows the shareholder’s equity, assets, and liabilities of a business organization at a particular time. It gives the investors an insight into what the company owes and owns, together with the amount invested by the shareholders. The income statement or the statement of financial performance shows the organization’s financial performance in a given fiscal year. It aims at showing either the profits or losses that the organization has made throughout a financial year (O. Plotnikova & V. Plotnikov, 2014).

Differentiating Features of the Cash Flow Statement

The statement of cash flows is different from both the statement of financial performance and the statement of financial position because it does not have the total of outgoing and incoming cash that is detailed on credit. For this reason; money is not similar to the net income that is indicated in the statement of financial performance and statement of financial income because they include both the cash and credit sales. Cash flow is established through looking at three elements by which the money enters and exits the organization; financing, investing, and core operations (Petersen & Plenborg, 2010).

Purpose of Cash Flow Statement

The main purpose of the statement of cash flows is to offer aggregate data concerning all the cash inflows that a company receives from the work in progress and the external investments. It also presents the cash outflows that cater for the business activities and investments in a certain quarter. Cash from the operating undertakings is associated with the firm’s net income. When the money from operating undertakings is often greater than net revenue, the firm’s earnings are high-quality. The vice-versa holds truth. The statement of cash flows makes a contrast between the cash that is flowing into and out of the organization. If the business is generating more revenues that it is spending, it is likely that it will increase dividends and purchase back some of the stocks (Petersen & Plenborg, 2010).

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