The order of presentation of activities on the statement of cash flows is
A) operating, investing, and financing.
B) operating, financing, and investing.
C) financing, operating, and investing.
D) financing, investing, and operating.
Cash Flow Statement
A cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company. The cash flow statement measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. A statement of cash flows is primarily intended to show the following:
To provide information about cash receipts, cash payments, and the net change in cash during the period, investing, and financing activities of a company during the period. Cash flow statement is primarily intended to provide information to financial statement users regarding the generation of cash. Additionally, the report highlights the future or prospective cash positions, such as cash or cash equivalents.
The cash flow statement shows the exact amount of a company’s inflows and outflows over time. A company’s income statement shows revenues and expenses over a period of time, including noncash accounting, such as depreciation. Reconcile with net income at the top. Add back the total value of your noncash expenses to your operating cash flow. Subtract the period change for each category of current assets. Add the period change for each category of current liabilities. While the income statement helps determine the profitability of the company, the cash flow statement helps determine the liquidity and solvency of the business, which ultimately determines the present and future cash flows.
The main components of the cash flow statement according to their order of presentation of activities are cash from operating activities, cash from investing activities, and cash from financing activities. There are two methods of calculating cash flow which include direct method and the indirect method.
The reason for the difference between cash and profit is because the income statement is prepared under the accrual basis of accounting, where it matches revenues and expenses for the accounting period, even though revenues may actually not have yet been collected and expenses may not have yet been paid. In contrast, the cash flow statement only recognizes cash that has actually been received or disbursed.