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UNDERSTANDING ACCOUNTING TALK 30 An Alternative Cash Flow Statement

by ren on November 2nd, 2007

The International Financial Reporting Standards (IFRS) require the reporting of a Cash Flow Statement consisting of movements in Cash from Operating Activities, Investing Activities, and Financing Activities.

This format identifies the sources of cash and its uses during the operating period. As a management tool, it is effective in clarifying whether or not the business is generating enough cash from its operations, whether it needs to liquefy or encash some of its investments (or sell some property), whether it has surplus cash for investing or acquiring new property or equipment, whether the business needs a loan to finance operations or has enough cash to retire a loan. This format has more details and is therefore more complicated to construct and to understand.

A simplified version (used only as a Management Report) is the listing of all Cash Inflows and Cash Outflows, and deriving a Net Inflow for the period.

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POSTED IN: Accounting for NonAccountants, Cash Flow Statements