Q.1. What do you mean by Cash Flow Statement?
Answer: A Cash Flow Statement is similar to the Funds Flow Statement,
but while preparing funds flow statement all the current assets
and current liabilities are taken into consideration. But in a cash
flow statement only those sources of funds are taken which provide
cash and only the uses of cash are taken into consideration, even
liquid asset like Debtors and Bills Receivables are ignored.
A Cash Flow Statement is a statement, which summarises the resources
of cash available to finance the activities of a business enterprise
and the uses for which such resources have been used during a particular
period of time. Any transaction, which increases the amount of cash,
is a source of cash and any transaction, which decreases the amount
of cash, is an application of cash.
Q.2. What are the objectives of Cash Flow Statement?
Answer: A Cash Flow Statement provides very useful help to financial
management of a business enterprise. It summarises the sources from
where the cash may be obtained and the specific uses to which the
cash may be applied during a particular period of time.
A Cash Flow Statement has the following uses:
Helpful in short-term financial planning: Cash Flow Statement provides
useful information to a business enterprise to make decision for
its short-term financial planning.
Helpful in preparing Cash Budget: A Cash Budget is an estimate
of cash receipts and disbursement for a future period of time. Cash
Flow Statement provides help to the management to prepare Cash Budget.
A comparison of cash budget and cash flow statement reveals the
extent to which the sources of the business were generated and used
as per the plans of the business.
Helps to understand liquidity: Liquidity means ability of a business
enterprise to pay off its liabilities when due. Cash Flow Statement
helps to know about the sources where from the cash will be available
to pay off the liabilities.
Prediction of sickness: With the help of preparing cash from operation
a business enterprise may come to know about cash losses in operation.
It helps to predict this type of sickness.
Dividend decisions: Dividend is paid within 42 days, when company
declares it. Cash Flow Statement helps the management to know about
the sources of cash to pay off dividend.