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Cash flow statements are essentially a financial statement that provides an analysis of the influx of revenue from various money making endeavors on the part of the company. The cash flow statement includes revenue sources such as billed income from the central operation process, investments made on the part of the corporation, and any financing activity engaged during the period cited. The idea is to provide the basis for an overall picture of how cash flow generated by the company is doing with handling the outstanding expenses incurred during operation.
The layout of the cash flow statement is essential to achieving an accurate picture of the flow of cash into and through the company. In order to determine if there has been a change in any one avenue of cash flow from previous periods, it is essential to develop specific criteria for determining what can properly be considered flows from operating, financing, and investment strategies. The application of these definitions must be kept uniform from one period to the next if any meaningful comparison between a current statement of cash flow and the statements from previous periods can take place.
One of the benefits of preparing a cash flow statement is that the document makes it possible to quickly determine if there has been a change in the efficiency of one or more revenue generating processes within the company structure. An upward swing in operating cash flow may indicate that the launch of a new product or the installation of new equipment is in fact increasing the cash flow from operations. At the same time, a statement of cash flow can indicate that the level of efficiency in operations cash flow has dropped from a previous period, indicating there is a need to look into what factors caused the shift.
Thanks to the widespread use of accounting databases and software today, the preparation of a cash flow statement is easier than ever before. Still making use of generally recognized accounting standards, it is possible to prepare a cash flow statement for just about any time frame required, assuming all pertinent data has been entered into the database. This makes it possible for companies to generate a cash flow statement on a monthly, quarterly, or annual basis if desired.
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