![]() The purpose of the statement of cash flows is to throw light on management’s use of the financial resources available to it and to help the users of the statements to evaluate the company’s liquidity-its ability to pay its bills when they come due. The bottom line shows that the company’s stock of cash and marketable securities increased by $35 during the year. Table 3 adds items not requiring immediate cash payment to income (e.g., depreciation) and subtracts items that appear in the income statement but are not part of the results of operations (e.g., the gain on the sale of a long-term investment). Similarly, an expense may be recorded without an actual cash payment. Cash from operating activities, on the other hand, reflects the actual cash collected, not the inflow of accounts receivable. Revenue is usually recorded when a customer receives merchandise and either pays for it or promises to pay the company in the future (in which case the revenue is recorded in accounts receivable). For one thing, not all revenues are collected in cash. Cash was also paid to purchase equipment this added to the plant and equipment assets but was not subtracted from current revenues because it would be used for many years, not just this one.Ĭash from operations is not the same as net income (revenues minus expenses). Cash was received from the issuance of bonds and was paid to shareowners as dividends neither of those figured in the income statement. The income statement differs from the cash flow statement in other ways, too. Instead, Any Company, Inc., subtracted the $5 from net income (line 5 in the table) and reported the full $19 below, under cash from investing activities. Since net income, the top lines in Table 3, included the $5 gain, the company could not include the full net income and the full cash proceeds from the sale of the investment, because that would have counted the $5 twice. In the accompanying example, cash amounting to $19 was received from the sale of the investment the income statement included only the $5 gain-the difference between the sale proceeds and $14, the amount at which the investment had been shown in the balance sheet before it was sold. The cash flow statement is distinct from an income statement, but the two statements are similar in that they summarize activities over a period of time. Increase in monetary assets other than cash Table 3: Any Company, Inc.: Statement of cash flows for the year ended December 31, 20_
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