Statement of Cash Flows

Statement of Cash Flows
Debra Patch
ACC 421
Feburary 21, 2011
Kaye Frashier

Statement of Cash Flows
      Credit is good but cash is better. An income statement shows what operating activities have occurred during a period. The statement of cash flows is a financial report that shows how the cash of a company is spent. This report shows the reader what is happening with cash within a company. Company’s report their operating, investing, and financing activities in this report. A company can have a negative net income and have a positive cash flow and the other way around. Investors and creditors want to know about a company’s ability to pay current debt. The statement of cash flows will show that information.
      The main reason for a statement of cash flows is to give the reader an insight into what is happening with a company’s cash. The information included is cash payments, receipts, and net change in cash. This report reconciles the beginning cash balance to the ending cash balance. This report is like a bank statement, which the records have to be reconciled and verified. The difference is that a bank statement handles one account and the statement of cash flows handles all cash transactions within the company. This statement shows how a company generates cash, spends cash, and its ability to return cash to its shareholders (Rothbort, 09/07).
      Two different ways are used to prepare the statement of cash flows. The direct method starts with the total income and subtracts any cash activities to determine the ending cash balance. The indirect method starts with the net income and adds or subtracts anything not a cash activity. The statement of cash flows consists of three parts. The first part is the operating activity section. Any transactions not clearly defined as investing or financing activities will be handled in the operating section. Any non-cash transactions are not included or removed from the income. Investing is the next section of...