What to know about the statement of Cash flow

Question 1

What are the objectives of the statement

Answer 1

There are 3 objectives

1)To show changes in cash flows during a certain period of time

2)Identify sources of cash inflows and see how they have been used by the company

3)To establish if the company has enough liquidity to support its activities and goals

Question 2

How many methods are there to prepare the cash flow statements and explain them

Answer 2

there are 2 methods to prepare the cash flow statement

1) the direct method: It requires converting revenues into receipts and expenses into disbursements.

2) the indirect method: It requires adjusting net income by removing all items included in the calculation of net income that do not affect the company’s cash flow. Then, the changes in the company’s working capital are added back in. This is the method used by most public companies

Question 3

Overview of the statement of cash flow

Answer 3

1) Cash flow from operating activities

2) Cash flow from investing activities

3) Cash flow from financing activities