Cash Flow Statement

Cash flow statement is a statement which is prepared to know about the sources of cash inflow and transactions of cash outflows of a firm during an accounting period.

The activities which generate cash cash in a firm is known as sources of cash inflows and cause cash outflows which is known as uses of cash.The information contained in the cash flow statement is materialistic,credible and reliable.The objective of the cash flow statement is to provide significant information associated with different activities viz operating,investing and financing activity.

Why it is vital for a firm to prepare a cash flow statement?Well, it is very important for a firm to prepare a cash flow statement as it enables the management to see whether the long term funds are sufficient to finance fixed assets.Also, sometimes a situation occurs when short term sources which constitute a source for long term purposes may not be desirable.Cash flow statement also indicates the extent of dependence on external sources and internal sources.

Cash flow statement is considered as a tool of financing planning.It shows the impact of various financing and investing decisions on future cash flows.Hence,cash flow statement enables the management to examine its investing,operating and financing activities so as to conform to the desired cash inflow and outflow of a firm.

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