Accounting Research: Advantages of Cash Flow

Advantages of Cash flow * Cash flow is more “direct” as “profit” is highly dependent on accounting conventions and concepts/principles * Cash flow reporting satisfies the needs of all users better since cash flow is more direct with its messages. Some of the interested user parties are: * Creditors -repayment of debts, overdue accounts * Management -cash flow reporting provides the type of information which decision should be taken re: relevant costs ( decision based on future cash flow) * Shareholders & Auditors -cash flow accounting and reporting can provide a satisfactory basis for stewardship accounting * Workers/staff needs to know that they are able to be paid for their wages & salaries and the enterprise they are working are stable * Cash flow forecasts are easier to prepare plus more useful than profit forecasts * Cash flow accounting in certain respects can be audited more easily than accounts based on the accruals or matching concept * Accruals concept is more confusing whereas cash flows are more easily understood * Cash flow with future projections or forecast are of great information value to all users of accounting information.[ should include variance analysis of the forecast by monitoring against actual cash flow]

Disadvantages of Cash flow * Lack of Tracking- Payments to the business is recorded as they come in, as are payments out of the business. The dates and times of these transactions are not recorded, however, making it very difficult to track down specific payments if errors are suspected. Likewise, the lack of tracking makes it impossible to connect specific payments with items of inventory or services that are rendered by contractors or other third parties. Being unable to track these payments can be a major disadvantage if accounting errors occur. * Offset Payment Problems- Cash flow accounting lacks dedicated departments for accounts receivable and accounts payable, making it