Tuesday, May 22, 2012
Monday, May 21, 2012
Cash flow statement
In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements.
People and groups interested in cash flow statements include:
- Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses
- Potential lenders or creditors, who want a clear picture of a company's ability to repay
- Potential investors, who need to judge whether the company is financially sound
- Potential employees or contractors, who need to know whether the company will be able to afford compensation
- Shareholders of the business.
|Statement of Cash Flow - Simple Example|
for the period 01/01/2006 to 12/31/2006
|Cash flow from operations||$4,000|
|Cash flow from investing||($1,000)|
|Cash flow from financing||($2,000)|
|Net cash flow||$1,000|
|Parentheses indicate negative values|
The cash flow statement was previously known as the flow of Cash statement. The cash flow statement reflects a firm's liquidity.
The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time, and the income statement summarizes a firm's financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues. The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a few. The cash flow statement is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activities. Non-cash activities are usually reported in footnotes.
The cash flow statement is intended to
- provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances
- provide additional information for evaluating changes in assets, liabilities and equity
- improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods
- indicate the amount, timing and probability of future cash flows
The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.
Friday, May 18, 2012
The Annual and Quarterly Statements are the primary financial reports required by
state insurance departments and similar governmental jurisdictions (such as the
District of Columbia, the Virgin Islands, and Puerto Rico) for health companies. The
format of the Statement and the rules to be followed in preparing it are established by
the NAIC. The Annual Statement, often called “Statement” or “Blank,” consists of
• Title page and jurat
• Balance sheet (assets, liabilities, and surplus)
• Statement of income
• Statement of capital and surplus
• Statement of cash flow
• Underwriting and investment exhibits
• Various exhibits of data which support other parts of the statement
• Notes to financial statements
• Summary investment schedule
• General interrogatories
• Five year historical data
• Numerous schedules, supplemental schedules and exhibits
The Statement also includes a report of premiums, enrollment, and utilization to
policyholders for each state in which the Statement is filed. An illustrative 2007
Annual Statement appears as Appendix A.
Although similar in format to the Annual Statement, the Quarterly Statement omits
many of the exhibits and schedules. It presents information on a year-to-date basis.
Friday, May 4, 2012
Generally Accepted Accounting Principles (GAAP) refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing, and in the preparation of financial statements.
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