Roadmap: Statement of Cash Flows May 2022 Deloitte Accounting Research Tool

balance sheet

Cash Flow Statement statements typically compare balances to previous accounting periods. For example, a monthly cash flow statement may also feature balances from the previous month or the same month in the previous year. For example, an investment banking analyst may use a company’s cash flow statement when calculating a discounted cash flow valuation. Learn how this works in the real world with Bank of America’s Investment Banking Virtual Experience Program. In summary, a well-rounded answer will absorb all the information contained within a statement of cash flows, using this to produce a thorough discussion of an entity’s performance.


The flow statement—also known as a statement of cash flows—helps you evaluate whether there is enough money coming in, and enough cash on hand, to pay your bills. In financial accounting, a cash flow statement provides a snapshot of your cash balance. A cash flow statement tells you how much cash is entering and leaving your business in a given period. Along with balance sheets and income statements, it’s one of the three most important financial statements for managing your small business accounting and making sure you have enough cash to keep operating. Since the income statement and balance sheet are based on accrual accounting, those financials don’t directly measure what happens to cash over a period. Therefore, companies typically provide a cash flow statement for management, analysts and investors to review.

Drive Business Performance With Datarails

Poor financial planning – If you don’t set up your budget beforehand and don’t perform a cash flow forecast, you’re likely to find yourself dealing with cash shortages. IA is usually decreasing because it has an effect of reducing the cash balance. I’ve explained the same in section 8.2, suggest you look at it once again. The Cash flow statement gives us a picture of the true cash position of the company. Liquid assets are assets that can be easily converted to cash or cash equivalents. The Cash flow statement is a significant financial statement, as it reveals how much cash the company is actually generating. Is this information not revealed in the P&L statement you may think?

Companies are able to generate sufficient positive cash flow for operational growth. If not enough is generated, they may need to secure financing for external growth to expand.

The Direct Method

Refer to Indiana University’s Consolidated Annual Financial Reports for a more detailed example on the direct method presentation. Cash flow is the main factor that impacts the interest rate paid on IU debt. Low cash flow results in a higher borrowing rate which has a negative and costly impact for IU.

This is in line with what we had discussed earlier, i.e. all the three financial statements are interconnected. Also, if ARBL takes on new debt in the future, it would increase the cash balance . We know from the balance sheet that ARBL did not undertake any new debt. The cash flow statement helps you look back over a specific period to predict the net cash, or amount of cash, you will need over a specific accounting period to fund your operating activities. You can use cash flow statements to create cash flow projections, so you can plan for how much liquidity your business will have in the future. The sales of crops and livestock are usually both income and cash inflows.

Roadmap: Statement of Cash Flows May 2022 Deloitte Accounting Research Tool