Unit 11 Flashcards
Why is cash flow to a business’ stakeholders so relevant?
The cash flow statement indicates the cash receipts and cash payments, for the period (and cash equivalents).
Thus, profit (loss), which represents the difference between the revenues and expenses for the period, may have little or no relation to the cash generated for the period.
It is not sufficient that a company acts in a profitable manner, obtaining a positive financial result for the year. Thus, the cash flow is a relevant financial statement to be considered, because the cash is vital to the survival of a business. Without cash no business can operate.
What is purpose cash flow and what is its format (based on activities)?
Provides relevant information about the cash receipts and cash payments of an enterprise during a period. This statement shows why cash and cash equivalents changed during the period by reporting net cash provided or used by operating activities, investing activities, financing activities
Explain the statement of cash flows and discuss how it can be helpful in identifying cash flow problems.
What are Cash and cash equivalents?
International Standards (IAS 7) define cash as: notes and coins in hand and deposits in banks and similar institutions that are accessible to the business on demand.
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes of value.
Cash equivalents are held for the purpose of meeting short- term cash commitments rather than for investment or other purposes.
