![]() ![]() The direct method would most likely be used by small firms doing their accounting on a cash rather than an accrual basis. It presents major classes of gross cash receipts and payments. The direct method utilizes actual cash flow information from the company’s operations. ![]() There are two methods of preparing the Cash Flow Statement: direct and indirect. It does not show profitability – the Income Statement does that.Īnchor Cash Flow Statement: Acme Manufacturing Cash Flow From Operations ![]() It’s important to note that the Cash Flow Statement reflects a firm’s liquidity. It’s also useful in determining the short-term viability of a company. This statement is the best resource for testing a company’s liquidity because it shows changes over time, rather than absolute dollar amounts at a specific point in time. ![]() Simply put, it reveals how a company spends its money (cash outflows) and where that money comes from (cash inflows). The other two financial statements - Balance Sheet and Income Statement - have been addressed in previous articles.Īs the name implies, the Cash Flow Statement provides information about an organization’s cash inflows and outflows over a specified time period. The Cash Flow Statement – also referred to as a statement of cash flows or funds flow statement – is one of the three financial statements commonly used to gauge a company’s performance and overall health. ![]()
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