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The Cash Flow Statement

Higher/Int 2Business Management2009-2010

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The Cash Flow Statement

A Cash Flow Statement is produced by an organisation in addition to the Trading Profit and Loss Account and Balance Sheet.

This statement shows movements of cash over the past year.

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Cash Management

Poor cash management is the second most popular reason for business failure.

The concept of cash flow is centered around liquidity - the ability to maintain sufficient liquid assets to meet day to day commitments.

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Cash Management

Most businesses fail, because they run out of cash and not because they lack success or profits.

A Cash Flow Statement provides an easy means by which to track the movements of cash.

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Terms

Cash Inflow: – a movement of cash into the business

e.g. cash sales.

Cash Outflow: – a movement of cash out of the business

e.g. cash purchases.

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Cash Movements

Cash Inflows:

– Decrease in debtors.– Increase in creditors.– Loan received.– New capital invested.– Profits.– Sale of a fixed asset.– Sale of stock.

Cash Outflows:

– Decrease in creditors.– Dividend payment.– Drawings.– Increase in debtors.– Loan repaid.– Losses.– Purchase of a fixed

asset.– Purchase of stock.

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The Cash Flow Cycle

CASH

Buy Resources

Use Resources to make Goods and Services

Sell Goods and Services to Generate Cash