Cash flow Statement (CFS) plays a very important role in financial and business environment and can provide an important and useful information about the performance of a company and business operations. This provides the income statements including Revenue, Expenses and Capital Intensive and can also provide key information about account receivable, which can indicate the ability of a company and business to connect their customers.
The Purpose and Benefits of preparing Cash Flow Statements
The cash flow statements is one of the major factor from the three financial statements and to provide useful information and serves various purposes of a business entity and the other two statements are the Income Statement and Balance Sheet. In terms of finance plan it’s a key part of your business plans. Cash flow statement helps us to find out identity financial opportunities and ensures our business is heading into the right direction as we want as well as the “Growing & Steady Cash” is a good indication of the company long-term viability”. If you think about your checkbook that accounts for all your cash inflows i.e., Deposits and all your outflows i.e., Checks and at the end of each month a remaining cash as balance is shown. A cash flow statement works and similarly except it is more systematic and well organized.
“The main purpose and objective of preparing ac ash flow statement is to ascertain the reason and the changes in cash position of a business entity as well as can provide beneficial information of receipts pay and cash.”
Need of Balance Sheet and Income Statement
Balance sheets are very important factor for any business, the balance sheet and income statement go hand in hand. The main purpose of balance sheet that contains a company’s assets, liability, and owners’ or stockholders’ equity for a given period, while an income statement shows a company’s revenues for a given period. Company needs this information on the regular basis, by the help of this they can able to analyze their company’s worth and income trends. In business environment it’s a key factor to remember that a balance sheet has to “balance” at the end of the day.
Income statements can be define and called Profit & Loss (P&L) statements, and they’re also essential for every business, this income statements terms indicate us how much money comes in for the sale of goods and services, what the associated costs are, and what income remains (the “bottom line” or net income). Both income statements and balance sheets differ from each other, income statements represent an accounting period, while the balance sheets represent a snapshot of a specific moment.
A company can use a cash flow statements (CFS) just to predict future cash flow which helps in terms of finance and budgeting. This Cash flow statement can provide the clues to find out and determine if and where the cash leaks are occurring. It’s a combination with other financial matter data is derived from income statements and balance sheet. Negative cash flow results from a company growth strategy in the form of expanding its business. That’s why analyzing changes in cash flow from one point to the next gives the investor a better idea of how a company and business is performing. “Cash is the lifeblood of all growing business”