Why Is the Statement of Cash Flows Important?

Why Is the Statement of Cash Flows Important?

Now that you know what SoFly uses to assist payday loans Somerset Ohio him in performing his job with the band, let’s look at why his job is important. Fans of the Financial Statements rely heavily on the group as a whole to paint a picture of how financially stable a company is. Each member of the band plays a specific role in painting that picture. The income statement and the statement of cash flow work closely together.

Some say that SoFly is really just an extension of Issy, the income statement. Why would that be? Well, simply put, Issy is responsible for telling fans the net profit or loss of a company during a given accounting period. SoFly goes beyond that by explaining why changes in cash balances occurred. That is the first of five reasons that SoFly is important to fans of the Financial Statements.

The second reason that SoFly is important to fans is because he helps them judge whether or not a company can pay the people that they owe money to. A third reason that SoFly is important to fans is because he helps them see whether or not a company has to borrow money to meet its debt obligations.

A fourth reason that SoFly is important to fans is because he helps them see why there are any differences between a company’s net income and the actual cash receipts and cash payments that a company made during a specific accounting period. Net income is the money remaining after deducting expenses.

The last reason that SoFly is important to fans is because he helps them see why a company may experience changes in their financial position from one accounting period to the next. These changes typically occur if any operating, investing or financing activities have taken place during that accounting period.

Lesson Summary

Let’s take a minute to review everything that you’ve learned about the unique character we call SoFly. The statement of cash flows is the last financial report required to be included in the Financial Statements. It’s the financial statement that details the manner that cash came into a company and the manner that cash went out of a company. The cash that comes into a company is called cash inflow. The cash that is paid out on company liabilities is called cash outflow.

The statement of cash flows is broken down into three sections: operating activities, investing activities, and financing activities. Operating activities are activities that occur during the normal day-to-day operations of a company. Investing activities are activities that involve the purchase and sale of long-term assets as well as making or giving loans. Financing activities are activities that involve cash receipts or cash payments that are a result of changes in long-term liabilities.

The last reason that the statement of cash flows is important is because it helps users see why a company may experience changes in their financial position from one accounting period to the next

There are five main reasons that the statement of cash flows is important. First, it explains why changes in cash balances occurred. Next, it helps users judge whether or not a company can pay the people that they owe money to. Third, it helps them see whether or not a company needs to borrow money to meet its debt obligations. Fourth, it helps them see why there are any differences between a company’s net income and the actual cash receipts and cash payments that a company made during a specific accounting period.

As you can see, SoFly is really one important member of the Financial Statements because he deals with cold, hard cash!

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