Cash Flow Methods Acc230 Essay

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L 11 ESSAY ACC 230 - Cash Flow Methods
By definition, the statement of cash flows is, “a financial statement that shows the sources and all of the uses of cash for an accounting period.” (Kemp & Waybright, 2013; 2010, p. 586) The statement of cash flows is also called the cash flow statement. Cash is the most important life line of a business. Without cash, the business cannot successfully maintain stability. Furthermore, without knowing where the cash is coming from, and going to, investors are more likely to not be attracted to the business. Businesses are much like people, in the sense that they are constantly worried about cash flow. They need a statement to explain to them where the cash is going, where it is coming from, and where they started to where they have come in the period. This is the statement of cash flows. The statement of cash flows categorizes the uses and sources of cash into three categories, operating activities, financing activities, and investing activities.
The first category is operating activities. Operating activities are a part of the uses of cash, as well as, the sources of cash in a business. Uses of cash for a business are obviously how the business uses the cash, or in more basic terms how it spends its money (cash out). The sources of cash are respectively, the places the business gets its money (cash in). Operating cash flows, using the indirect method, includes net income, depreciation, depletion, and amortization expenses, gains and losses on the sale of assets, and changes in the current assets and the current liabilities. The operating section of the statement of cash flows begins with net income, taken from the income statement. Additions and subtractions must be made to go from net income to net income from operating expenses, these follow net income on the statement of cash flows indirect method, and are labeled as…...

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