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The Statement of Cash Flow Essay

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ACC215 – The Statement of Cash Flow
Sheila Montanez
Independence University
Instructor: Jim Dederer

The statement of cash flow reports adds validity and accountability to the Financial Statements It is the final document in the Financial Report set, and provides information that is direct flow of information from the Income Statement and Balance Sheet.
Everyone from investors, stockholders, potential investors and lenders, analysts use these reports in order to assess the financial health of a business.   The cash flow statement tells you the reader how much money was spent for items that do not appear in the Income Statement such as loan repayments, long-term asset purchases, and payment of cash dividends (www.referenceforbusiness.com).   A cash flow statement neutralizes the impact of the accrual entries of the other financial statements.   The sources and uses of cash are categorized to provide understanding to the reader the amount of cash a company generates and uses in its operations, as opposed to the amount of cash provided by sources outside the company, such as borrowed funds or funds from stockholders.
One type of information derived from the cash flow statement is called accrual accounting.   Accrual accounting requires companies to record revenue and expense when transactions occur, not when cash is exchanged.   The statement of cash flow helps investors sort out this information.   It shows the investors how much actual cash a company has generated.   Whereas the income statement often includes noncash revenue or expenses, which the statement of cash flows excludes.   It provides a sharper picture of a company’s ability to pay creditors, and finance growth.
Having a correct statement of cash flow warns investors that a company may have rocky times ahead.   The company either has cash or it does not.   Analysts will look closely at the cash flow statement of any company in order to understand its overall health. It offers the manager, investor,...

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