What is Cash Flows ?

This is somewhat of a rehash of point #3, but it's important. One of the beautiful things about the cash flow statement is that, for the most part, it simply tracks the movement of cash. It is not as influenced by accrual accounting methods, which record expenses in the period in which they're incurred. For example, if the accounting department cuts a check to Allstate for, say, the next six months of insurance premiums, this month's income statement will only reflect one-sixth of the check amount each month for the next six months.

This month's cash flow statement, however, will show the full amount of the check as a cash outflow, because that's what actually happened to the cash. The cash flow statement doesn't care that the bill was for the next six months of insurance.

As mentioned, the cash from investing activities section discloses the amount of cash involved in purchasing or divesting capital assets during a certain period. This is helpful for determining how far along a particular project may be, how much a particular acquisition "really" cost when intangible costs are considered, or how much the company got for the sale of certain assets.

It is not as influenced by accrual accounting methods, which record expenses in the period in which they're incurred. For example, if the accounting department cuts a check to Allstate for, say, the next six months of insurance premiums, this month's income statement will only reflect one-sixth of the check amount each month for the next six months.

corporate payments on debt are usually made up of interest and principal. However, the income statement typically only shows the interest portion, and the balance sheet typically only shows the principal. It's much easier to look at the cash flow statement if you want to know the actual size of the whole payments.

This month's cash flow statement, however, will show the full amount of the check as a cash outflow, because that's what actually happened to the cash.

A company might tell everyone that it is doing a $10 million equity offering, but if that offering is spread over several months or years, or it involves fees and expenses, the cash flow statement is the only primary financial statement that will tell you exactly how much actually went into the company's cash account and when.

The cash flow statement doesn't care that the bill was for the next six months of insurance. It only cares that cash left the account.

It's important to remember that the financial statements are integrated. If the income statement changes, the cash flow statement almost always changes. After any change in revenue or expenses affects net income, and net income is the first line on the cash flow statement. If the balance sheet changes, the cash flow statement almost always changes.

As mentioned, the cash from investing activities section discloses the amount of cash involved in purchasing or divesting capital assets during a certain period.

This is one area that often trips up people who are new to the cash flow statement. Accounts payable and accounts receivable are big components of working capital--the source of a company's short-term liquidity.

This is helpful for determining how far along a particular project may be, how much a particular acquisition "really" cost when intangible costs are considered, or how much the company got for the sale of certain assets.

Like your mortgage, corporate payments on debt are usually made up of interest and principal. However, the income statement typically only shows the interest portion, and the balance sheet typically only shows the principal.

Cash flow is a generic term that can be used differently depending on the context. It can refer to actual past flows or projected future flows. It can refer to the total of all flows involved or a subset of them - for example, net cash flow, operating cash flow, and free cash flow.

It's much easier to look at the cash flow statement if you want to know the actual size of the whole payments.

These terms will be defined later, but for now we will concern ourselves only with actual cash flows for a period of time in the past. It is important to define what is meant by 'cash'

If the two statements do not tie in this way, it is likely an error occurred.

A company might tell everyone that it is doing a $10 million equity offering, but if that offering is spread over several months or years, or it involves fees and expenses, the cash flow statement is the only primary financial statement that will tell you exactly how much actually went into the company's cash account and when.

It's important to remember that the financial statements are integrated. If the income statement changes, the cash flow statement almost always changes.

After any change in revenue or expenses affects net income, and net income is the first line on the cash flow statement.

There are two completely different accounting documents that have the words 'cash flow' in the title and it is important to avoid confusing the two of them. These documents are a 'cash flow forecast' and a 'cash flow statement.' A cash flow forecast, which has already been mentioned, is an internal document produced on an ad hoc basis to help with budgeting.

While ambiguous images were designed to test perception, financial statements often test your patience. Especially when so many terms and concepts sound nearly identical, even when they’re not. One specific example is the difference between revenue and cash flow.

If the balance sheet changes, the cash flow statement almost always changes.

Revenue is the amount of money that a company earns from the sale of goods and services. It’s that simple, it only measures the total income from sales.

In contrast, a cash flow statement is one of the principal financial reports that an organization publishes each year in accordance with international accounting standards.
As a manager, you may be asked to produce a cash flow forecast to show your known and anticipated cash expenditure for some future period of time, usually the next budgetary period or the remainder of the current one.