Financial statements expose the ability of an organization to generate cash and its equivalents and certain timing and limits. Information on cash flows is useful in providing and assessing the capability of a company to utilize those cash reserve company posses.
In general term a cash flow statements used in conjunctions with financial statements for evaluating change in net financial assets, an entity is posing as well its ability to affect the timing of cash flow (Kousenidis, 2006).
The cash flow statements are known to enhance comparability of performances of a different organization. This happens because it eliminates different accounting policies for the same events and transactions. It also helps in examining the existing relationship between profitability and net cash flows impacting charging prices.
Cash And Cash Equivalents
Many Essay writer in Saham have said, a cash flow statements provides a brief analysis of cash changes and cash equivalents, there to understand about cash flow statement one should know actual meaning of cash and cash equivalents.
Cash of a company comprises hand on hand deposits, liquid investments which can be a later deposit and withdraw on prior notice. For instance, a term deposit with a bank is known as a demand deposit. But if bank charges on premature withdraw of cash, then this term deposit is said to be demand deposit (Subramanyam, 2014).
They are short term and highly liquid investment which are ready to be converted and subject to insignificant changes in risk values (Paolone, 2020).
Cash equivalents in a company held for the short term commitments rather investment purpose. A debt investment in securities also classified as cash equivalents when it is based on short term maturity.
Bank borrowings generally classified as financial activities. But bank overdrafts repayable on demand are included in cash flow management as it encompasses both components of cash and cash equivalents.
According to online assignment help experts, cash flow are categorized into three activities
|Cash flow origin||Description|
|Operating Activities||A principle revenue company generated including transaction of events determines net income|
|Investing activities||These activities are related to capital expenditure, intercorporate investments and acquisitions|
|Financial Activities||It is related to transactions changing capital structure(Sayari & Mugan,2013|
Nature Of Cash Flow From Investing Activities
Investing activities are referred to as long term assets and other investments but not cash equivalents.
Cash flow from investment represents the extent via expenditure have been made for the resources and used to generate future income and net profits.
As defined by accounting assignment helper, cash flow from investing activities are-
- Cash payment to gain fixed assets
- Cash receipt from fixed assets and sales a
- Cash payment to get an equity
- Cash receipts from future contracts and swap contracts except cash arises from the trading purpose
Nature Of Cash From Financial Activities
Financial activities are those activities that are resulted from a change in size and composition attributing borrowing and equity of the firm.
Its separation expansion helps the company in claiming future cash from the providers.
An example financial activities are-
- Cash proceeding from shares issuing or other equity
- Cash payment to the owners
- Cash proceeding to issues loans, notes, bonds and mortgages
- Cash repayment of the amount borrowed
- Cash payments by a lessee
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The article started with defining cash flow statement, cash and cash equivalents. On that note, it can be deduced a cash flow statements used in conjunctions with financial statements for evaluating change in net financial assets. On the other side, cash equivalents are short term and highly liquid investment which are ready to be converted into assets. In the next section, we have determined the cash flow nature of operating, financial and investing activities. Each one plays a distinct role and suggested information. For instance, Cash flow from investment activities represent the extent via expenditure has been made or cash flow from financial activities helps the company in claiming future cash from the providers.
Bradbury, M. (2011). Direct or indirect cash flow statements?. Australian Accounting Review, 21(2), 124-130.
Kousenidis, D. V. (2006). A free cash flow version of the cash flow statement: a note. Managerial finance, 32(8), 645-653.
Paolone, F. (2020). Concluding Remarks: The Importance of Cash Flow Statement. In Accounting, Cash Flow and Value Relevance (pp. 69-81). Springer, Cham.
Sayari, N., & Mugan, F. N. C. S. (2013). Cash flow statement as an evidence for financial distress. Universal Journal of Accounting and Finance, 1(3), 95-103.
Subramanyam, K. R. (2014). Financial statement analysis. McGraw Hill Education.