Cash Flow Information (Essay Sample)

Cash Flow Information
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Cash flow statement provides for the actual cash inflow and cash outflow from a business. Cash flow statement came into existence after business failures resulting from poor cash flow management. Though the balance sheet, income statement, and statement of stockholders equity provide financial information necessary for running of businesses, cash flow statement comes in handy for provision of more in depth information for decision making.
Unlike the balance sheet, income statement and statement of equity, cash flow statement provides extra information to various stakeholders. The cash flow statement is divided into operating activities, financing activities, and investing activities. Operating activities include cash flows relating to the general business operations for revenue generation. Operating section is divided in such a way that receipts from customers are separate from expenses incurred in carrying out the business. The cash flow provides detailed information on receipts and expenses but the income statement gives generalized information.
Financing activities section of the cash flow statement details the total cash flows for acquiring and repaying of capital funds. The statement categorizes the cash flows involved in financing of the business. Also, the investing section of the statement specifies the cash involved in running investment activities. Cash flows from principal collections are recorded as investing cash inflows while payments for the acquisition of capital assets are recorded as investing cash out flows.
Division of cash flows as financing, investing, or operating is what makes the statement of cash flows more special in relation to other financial statements. It is easier to make decisions on financing, investing, and operations since there is detailed information regarding their cash inflows and cash outflows. It is possible for management and other stakeholders to get a view of the business in terms of its financial, investing, and operational strength by just looking at the cash statement and make required improvements or changes.
Using the income statement to monitor performance is not adequate for a business. It is important for management to monitor cash flow in order to identify problems limiting the growth of a business. The main objective of the statement of cash flows is to provide information on how well to monitor cash flow in terms of amount, timing, and uncertainties. The statement is divided into three elements namely; financing, operating, and investing activities. The three elements of cash flow statement are the most important for the company to monitor.
The management gets an overview on the financing, operating, and investing activities of the organization and hence is able to plan an...