Cash Flow Statement Flashcards, test questions and answers

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What is Cash Flow Statement?

A Cash Flow Statement is a financial document that provides an overview of the cash inflows and outflows of a business over a certain period of time. It is used to assess the liquidity, solvency, and financial health of a business by tracking the movement of cash in and out of its accounts. The statement includes operating activities (cash generated by regular business operations), investing activities (cash generated by investments or other non-operating activities), and financing activities (cash provided through loans or other forms of financing).The primary purpose of the Cash Flow Statement is to provide insight into how well a company is managing its finances. It helps to identify potential issues that may affect the company’s ability to generate sufficient cash flow and pay its bills on time. By assessing the amount of cash flowing in and out, investors can gain an understanding as to whether or not the company has enough money coming in from operations to cover all expenses. The Cash Flow Statement also reveals how much money is available for future investments or other purposes.The first step in creating a Cash Flow Statement is identifying all sources from which cash flows into and out from the company during a given period (usually one year). This includes all transactions related to sales, purchases, salaries, taxes etc., as well as any external funding sources such as loans or equity investments. Once all transactions have been identified, they must then be categorized according to their type operating activity, investing activity or financing activity so that their net effect on cash flow can be calculated accurately.Finally, it’s important to look at past trends when interpreting your Cash Flow Statement results in order to better understand why certain results occurred at certain times and what may have caused them. This will enable you to make more informed decisions regarding future strategies for increasing revenues while reducing expenses so as ensure increased profitability over time.