Purpose of Cash Flow Statement in Accounting
The cash flow statement is an overview of a business’s liquidity. It includes the flow of cash acquired from operating activities, investing activities, and financing activities over a specified period of time. Put simply, it is a record of cash made and used during that time.
Download Our Free Brochure →Operating activities refers to the action of selling a product or service. While the income statement shows the money earned from the product or service provided in accrual basis accounting, the cash flow statement shows this money in cash basis accounting.
Investing activities include money gained or used in the purchase or sale of an asset, loans given or made, or payments made to or from mergers or acquisitions.
Financing activities refers to stocks and payments of dividends. This can include issuing and repurchasing the companies own shares.
The cash flow statement shows the short-term viability of a company. Unlike the other two reports in the financial statements, this report always uses cash basis accounting.
