Friday, 7 December 2018

Statement of Cash Flows

Cash flow statement is a financial statement containing the information flow of incoming cash and cash flow out of an enterprise during a certain period. This information serve and are classify according to the types of activities that cause the occurrence of incoming cash flow and cash out. The company's activity generally consists of three types, namely, the operational activities, investment activities and financial activities.

Operational activities for trading companies consist of merchandise buying, selling such merchandise as well as other activities related to the buying and selling of goods. For service companies, among other operational activities is selling services to its customers. Suppose to sell the services of aeronautical and non-aeronautics.


These activities will result in the occurrence of money goes to income and the flow of money out for a fee. Both the revenue and the cost of that happening have been report in the income statement, but the magnitude of the income is not necessarily the same as earn money because the companies generally use the accrual basis for recognizing revenue. The case with costs, the costs report profit loss is not necessarily equal to the amount of the outflow.

Investment activity is an activity of buying or selling the investment return on long-term securities and fix assets. If the company purchase investment/fix assets will result in the outflow and if selling invests/fix assets will lead to the existence of the incoming cash flow to the company.

Financial activities or anybody calls it, is funding activities attract money from long-term creditors and of the owner as well as a refund to them.

The financial system

One of the financial analysis that is vital for financial managers, in addition to other financial instruments are cash flow statement. The definition of this analysis is to find out how it will be use and how the needs of the funds will be spent. The cash flow analysis can be known from whom obtain and for what these funds are use. A report that describes where obtain and for what the Treasury use, as refer to as cash flow statement.

Cash flow statement directly or indirectly reflect the entity's cash receipts are classify according to the primary sources. The payments of cash classify according to main user for one period. This report provides useful information on the activities of the entities in generating cash on his activities and on investing or sending cash.

In drawing up the cash flow statement there are 2 (two) methods are use, namely:

The direct Method

The direct Method was report in the gross cash receipts from operating activities and accounts payable in gross for operating activities. The difference between cash receipts and spending cash from operating activities will be report as net cash flow from operating activities. In other words, the direct method to deduct expenses of operating cash receipts operating cash. The direct method of generating report receipt and presentation of the accounts payable in a nutshell.

In the Direct method of reporting cash flows also report net cash flow from investment operations as the main group of operating cash receipts. (for example: cash receive from customers and cash receive from interest and dividends). Accounts payable (for example: cash paid to suppliers for goods, for services to employees. To the lender for interest and to government agencies for taxes).

The main Advantage of this method is the direct method shows the report of receipt and expenditure of cash is more consistent with the objective of a cash flow statement. In addition, this direct method is easier to understand and provide more information in taking decisions.

By the method of direct information on major groups of gross cash receipts and gross cash expenditure can be obtain by:

  1. Accounting records the existence of the company.

  2. Adjust the sales, sales loads and other outposts in the income statement regarding:
    1) Change in inventories, receivables and Payable business during the period.
    2) Post instead of other cash.

To cash flows of investment and funding.

Indirect Method

In the method indirectly, influences of all cash receipts and expenditures of the suspension in the past. All of the cash receipts and accounts payable that are expect in the future upcoming remove. Net profit calculate profit loss. This provision is done by adding the posts. Which do not require cash expenditures back to net income as well as the addition. Subtraction of the increase or decrease debt and accounts receivable.

The main Advantage of this method is that it is concentrated the difference between net income. Net cash flow from operating activities. Net cash flow from operating activities is determine by adjusting the profit or loss net of influence:

  • Changes in inventory and accounts receivable and Payable business during the period.

  • The post instead of cash, such as depreciation, allowance, deferred tax, foreign exchange gains.

  • Losses are unrealized, profits of associated companies.

  • That have yet to be share and minority interest in loss consolidation/comparison.

Net cash flow from operating activities can be report (indirect) by presenting income with load express in the income statement. As well as the change in inventories, receivables and Payable for a certain period. While the manner of reporting cash flows from investing and funding on two methods. Either directly or indirectly is the same. So different are the methods of reporting cash flow for operating activities of the company.

Financial institutions have a strong desire towards indirect method due to their suppose method is more informative. Although financial institutions that wants the debtor

Net Cash Flow Form

Compile cash flow statement the company with direct method but the debtor can't be granted meet the wishes of creditors. Because for him the more useful the use of indirect methods. It is able to describe the net cash flow from operating activities also this approach can better attract attention with a complex adjustment.

Indirect Methods also provide financial information in the determination of profit/loss. That uses the accrual basis method. Where this method is the wrong directions in assessing the cash flow from operations. If the company continue to use the indirect method. Then there should be a separate disclosures regarding changes in estimate accounts receivable, inventory, investments, fees are paid upfront.

The estimates of other current assets. Estimated Payable, payroll, rent and estimated debt to smoothly determine the amount of net cash from operating activities change in time was about to adjust net income with revenue and expenditure net of operating activities.

Activities Funding

funding Activity includes activities to obtain cash from investors and creditors needed to run and continue the activities of the company. Funding activities include spending on stocks, borrowing money by issuing money orders and pay loan bonds, treasuries, stocks and sales payments against shareholders as dividends. Treasury stock purchase. Payments against creditors are simply includes the payment of the loan principal.

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