Cash Flow Statement and Debt Collection
Friday, January 30th, 2009To understand the Cash Flow of the business properly, Cash Flow Statements will have to be prepared to ascertain the Cash or Cash equivalents position over the period of time.
Cash flow statements are grouped into three viz.,
Cash provided in operating activities: In preparing the statement of this segment, the net income of the operating activities is taken as the opening balance for the period. Normally, the net income includes depreciation, Collection of Debts expenses etc. These will have to be added back to the balance. Because, these expenses had actually reduced the net income but not the net cash of the company. To this, present level of inventory is added. If the inventory has increased, it would mean cash would have gone out. So, this amount is reduced in the net value of the inventory. If the current liability has decreased even that is reduced because to clear the current liabilities cash was used. The net is the cash provided by operating activities.