Cash Flow Statement
Introduction
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. The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an enterprise during a period. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.
In the United States, SFAS 95, Statement of Cash Flows, establishes standards for providing a statement of cash flows in general-purpose financial statements. This statement supersedes APB Opinion No.19, Reporting Changes in Financial position, and requires a business enterprise to provide a statement of cash flows in place of a statement of changes in financial position. It also requires that specified information about noncash investing and financing transactions and other events be provided separately.
Background and History
In 1971, the APB issued Opinion No. 19 officially requiring that a funds statement be included as one of the three primary financial statements in annual reports to shareholders and that it is covered by the auditor’s report. Opinion No. 19 did not specify a single definition or concept of funds or a required format for the statement. This statement was called the statement of changes in financial position. Problems with the SCFP were the fact that it had not made clear the primary categories of cash flow activities, the SCFP could be prepared with either cash or working capital, and the term "cash"
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. The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an enterprise during a period. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.
In the United States, SFAS 95, Statement of Cash Flows, establishes standards for providing a statement of cash flows in general-purpose financial statements. This statement supersedes APB Opinion No.19, Reporting Changes in Financial position, and requires a business enterprise to provide a statement of cash flows in place of a statement of changes in financial position. It also requires that specified information about noncash investing and financing transactions and other events be provided separately.
Background and History
In 1971, the APB issued Opinion No. 19 officially requiring that a funds statement be included as one of the three primary financial statements in annual reports to shareholders and that it is covered by the auditor’s report. Opinion No. 19 did not specify a single definition or concept of funds or a required format for the statement. This statement was called the statement of changes in financial position. Problems with the SCFP were the fact that it had not made clear the primary categories of cash flow activities, the SCFP could be prepared with either cash or working capital, and the term "cash"
References: 1. Financial Accounting Standards Board, 1987, SFAS 95, Statement of Cash Flows http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175820920892&blobheader=application%2Fpdf 2. Financial Accounting Standards Board, 1984. Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises 3. Hugo Nurnberg, October 2006, Perspective on the cash flow statement Under FASB statement No. 95 http://www4.gsb.columbia.edu/null?exclusive=filemgr.download&file_id=104 4. Diane Murphy, Jan 2007, A History and Overview of the Statement of Cash Flows http://www.associatedcontent.com/article/132059/a_history_and_overview_of_the_statement.html?cat=3 5. Lea Miller, June 27, 2010, Understanding the usefulness of a cash flow statement http://www.helium.com/items/1874120-understanding-the-usefulness-of-a-cash-flow-statement 6. Neil S. Weiss and James G.S. Yang, March 2007, The cash flow statement: Problems with the Current Rules http://www.nysscpa.org/cpajournal/2007/307/essentials/p26.htm