Statement of Cash Flows, Essay Example

The statement of cash flows assists investors and creditors review the operational, investment and financing occupations of an organization. The statement of cash flows enables the future prediction of future cash flows. The cash flows which are predicted could be cash received from clients, cash paid to suppliers, investors, creditors and the payments which are received for operational costs.The statement of cash flows facilitates the prediction of future cash flow from the sales of goods or services, the sales of equipment, property and investments. The cash inputs and outputs are detailed in a manner where the trends for future decisions can be made (Nurre Chap. 12)

The management occupations which include financing, investing and operating are manifest through the statement of cash flows. The cash flow statement provides an analysis of the cash outflow and inflow of an organization. This analysis enables the prediction of the fulfillment of obligations to lenders and dividend holders (Almeida & Campanello 1; Nurre Chap. 12).

The information which is derived from the statement of cash flows with regards to financing, investing and operating activities can be found on the comparative balance sheet. The comparative balance sheet demonstrates the changes which take place in the shareholder’s equities, liabilities and assets. The changes in current assets would be demonstrated in the operating activities of the income statement.

The types of changes in current assets which would be manifested on a cash flow statement would appear as the following:

1. Cash received from clients- includes income from sales in addition to the decline in accounts receivables or the addition of elements to the accounts receivable section.
2. Cash which is paid to suppliers- Entails the expense of goods in addition to the increases or decreases in inventory assets. The accounts payable section would also demonstrate an increase or decrease.
3. The payments which are received as cash for the operational costs of an organization- Includes operating costs in addition to prepayment expense. These paymentswould be manifest as a decrease in accumulatedexpenses and prepayment expenses. The expenses which are payable would show increase or decrease under current assets (Nurre, Chap. 12).

Works Cited

Almeida, Hector & Murillo Campanello. “Financial constraints, asset tangibility and corporate investment.” NBER Working paper 12087 (2006): 1- 37.Web. 5 February 2014 http://cid.brp.gob.pe/biblio/Papers/NBER/2006/febrero/w12087.pdf

Nurre, Rosemary. “Chapter 12: Accounting 121.” College of San Mateo, 2014. Web. 6   February 2014http://www.smccd.edu/accounts/nurre/online/chtr12fa.htm