Larry D. Abernathy
ACC 421/Intermediate Financial Accounting I
Statement of Cash Flows
The facts contained in the balance sheet and the profit and loss statement is connected by the bridge that is the statement of cash flows. By recording the flow of cash and cash equivalents into and out of the company the statement of cash flow is a good indicator of a company’s health. Thus, the purpose of the statement of cash flow is to reflect in record form the cash balances reflected in the balance sheet. The statement of cash flow has three main sections and each section tells us a unique thing about the company. The operating section tells us how the company is generating and using cash to support its day to day activities. Specifically, it gives information about the payments for the sales of loans, debt or equity instruments in a trading portfolio, the interest payment, tax payment, payments to suppliers for goods and services, dividends on equity securities, interest received on loans, receipts received on loans and receipts from sale of goods and services. Also the cash flow statement helps assess the ability of the entity to pay its bills and meet its obligations. The investing section tells us how a company is using its cash to grow long-term. If you see a lot of investments outflow, that means that the company is investing in capital projects that will sustain its earnings in the long-term. It gives information about the investing activities that are used with operating activities. The cash that goes into the investing activity of the firm is disclose by the cash flow statement. This includes loans made to suppliers, assets like and, purchase. Financing sections tells us the equity and debt situation of the company or how a firm is raising money to support its short-term and long-term goals. In detail the cash in financing activities provides information about the proceeds from...