Statement of Cash Flows

Abstract

The statement of cash flows is the third required financial statement for all companies. The cash flow statement is a complement to the income statement in the balance sheet. It was added as a requirement with the income statement and the balance sheet in 1988 as required financial documents for all businesses by the US Security and Exchange Commission. The statement shows the change of actual cash flow in a company over a period of time. As we described earlier, some expenses and incomes do not actually represent real cash dollars. This document describes the actual cash flow into and out of the entity. It starts with cash at the beginning of a period such as a year or physical period and then adds and subtracts the actual cash flow during the period. The income statement presented earlier is concerned about the company making a profit. Statement of cash flows is concerned about the company generating enough cash to be viable and sustainable. The company generates a surplus of cash; then the organization can be considered viably stable if they generate more cash than they spend. In general there are three sections or activities in the statement of cash flows: operating activities, investing activities, and financing activities. People and groups who are mainly interested in the cash flow statements are accounting personnel, lenders and creditors, shareholders, employees and contractors, and potential investors into the business.