When I was student of graduate class and I read the basic topic of cash flow statement , I always thought that what is the need of cash flow statement , when we already made final accounts but now when I used cash flow statement in my real life , I have understood that cash flow statement is very necessary and it is main part of accounting statement .
In simple way we can say it tells us cash inflow and cash outflow but in real sense , it is necessary tools of cash’s input and output in any business concern when we compare two or more years total cash flow may be in three type of activities (i)In operating activities from one financial year to another financial year we can get cash from selling of goods , receiving the money or any other operating activities or we can outflow of cash in B/p , creditors or any buying of goods . So different can be said as net flow of operating activities .
(ii) Investing activities
You know very well that with two years any company can buy or sell any assets buying of fixed assets is outflow and selling any asset is inflow of cash difference of both is net cash flow from investing activities .
(iii) Financial activities
Financial activities are related to buying and selling of shares and debentures .Selling of shares and debenture is inflow of cash and opposite if company buys shares of other company , this is called outflow of shares .
After calculating all net inflow and this is called flow of cash and statement making for this is called cash flow statement . >Benefit is it only for cash management who wants to make different planning . An account manager easily calculate what is the real cash flow position . Company’s overall flow of cash is favorable or not . Some time cash book shows good current cash balance but a good account manager should investigate the overall flow of cash before buying high funded assets . This decision should be taken after complete analyzing of cash flow statement . Cash flow statement shows more outflow than inflow this is unbalanced situation .So be careful .