Accounting 03: Cash Flow What You Should Know

As a business person, the knowledge of cash flow wouldn't only help you to know the inflow and outflow of money your business is receiving on a daily busy. It is needed for all types of businesses whether big or small-scale businesses you need the knowledge of cash flow statements which is why this post is dedicated to you.

---

"CASH FLOW STATEMENT"

freepik

The best way to manage the finances of a business is by tracking the cash flow of the business by doing so, the company would be able to know how cash is being flowed into the business account and how cash is also flowing out of the company account.

This simply means that "cash flow statement" is an accounting statement that is used to show the inflow and outflow of cash of an organization. Cash flow is very important in a business as it helps a business to know its income and expenditure. A cost accountant would treat a cash flow as a statement that determines the surplus and deficit of a business.

---

IMPORTANCE

freepik

For your business to be successful, you need sufficient cash to run the business which is the perfect way you can track how cash is being managed in your business, it is the Chas flow statement that you will need. Let's put talk aside and now look at the main reason why a cash flow statement is needed for the success of a business.

---

• IT HELPS YOU TO KNOW ABOUT YOUR SPENDING:

Cash flow statements give business owners a clearer picture of how money is being spent on purchasing goods, paying staff, and other spending incurred.

---

• IT HELPS BUSINESSES TO MAINTAIN OPTIMUM CASH BALANCE:

As a business owner cabs flow statement helps you to maintain the available cash you have on hand to run your business. Going further it helps businesses to know how much has been spent and if more money is to be spent or not.

---

• CASH FLOW STATEMENT IS USEFUL FOR SHORT-TERM PLANNING:

The only perfect way a business can control its cash is through a cash flow statement, which has a cash flow statement, helps business to have liquid cash to settle short-term needs.

---

CASH FLOW SECTION

freepik

Three (3) sections are what Cash flow is divided into. These sections are; investing, financing, and operating activities. Let's briefly talk about each of them.

Investing Activities:
This is the activities of cash flow from the buying and selling of assets used to generate cash for the business. As a business owner, when you invest money in purchasing equipment to use the equipment to generate income.

Financing activities:
These activities deal with creditors which is how a company is to be financed for smooth operation. Here I would say that it is the section of cash flows that deals with equity and debt financing of a business.

Operating Activities:
This is the section of cash flow that deals with how revenue is generated from selling goods or offering services to customers. It also deals with how money is spent, which simply put is a cash flow that deals with the income and expenditure of a a business.

---

Conclusion

Financial information or documents are designed to provide shareholders, the government, and so on with deep insight into the financial status of a company.

Investors like looking at a company's financial documents such as cash flow before thinking of investing or owning a share in the company. Through the help of the cash flow of a company, you will get to know if it is riskier for you to Invest in the company or not. "Cash flow" is an easy way to determine the inflow and outflow of income which we have learned today.

Reference & Reference