The Workings of The Statement of Cash Flows.

Publication: Business Credit

Publication Date: 01-SEP-01

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COPYRIGHT 2001 National Association of Credit Management

Question: How does the Statement of Cash Flows tie into the other financial statements?

Answer: The Statement of Cash Flows is the cash reconciliation of the activity on both the Balance Sheet and the Income Statement.

Both laymen and accountants who do not work regularly with the Statement of Cash Flows sometimes find that of all the financial statements, the Statement of Cash Flows is the most misunderstood and confusing.

The Statement of Cash Flows was actually the last statement to be added to financial statements. In 1987, the Financial Accounting Standards Board issued the Statement of Financial Accounting Standards (FASB) No. 95 entitled "Statement of Cash Flows." The FASB initiated the requirement that audited financial statements in the US must include the Statement of Cash Flows. Even today, companies with non-audited financial statements may leave out this important statement.

Although misunderstood, it is a very insightful piece of financial information, as it converts both the Balance Sheet and Income Statement accrual activity into a cash basis. If you want to know what's going on...

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