The cash flow statement is the most important fact in accounting also it has a variety of uses. In the following paragraph, you will learn the preparation of the cash flow statement.
Preparation of cash flow statement
A cash flow statement may be prepared in respect of a new concern and, also, an existing concern. In the case of the former, it will be based on the prospects of the project under consideration while in the case of the latter the estimates should relate to the existing business as well as the proposed expansion of the business.
The cash-flow statement is generally prepared for a number of years which may include, in case of a new concern, the construction period and the operating period as well. The futures relating each quarter/half-year/year are shown.
These figures do not reflect the cumulative position but only the changes that have taken place or that are likely to take place during the successive periods. The cash-flow statement thus shows the changes (i.e., increase and decreases) in the various items of the balance sheet and also incorporates the working results of each year.
The cash-flow statement is divided into two parts, namely,
- Sources of funds which show inflow of cash from various sources both capital and revenue, and
- Uses or application of funds, which show the outflow of cash for various purposes.
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