the concept behind the cash flow statements?
In: Economics
An income statement contains a record of revenues, incomes and expenditures. Not all expenditures are cash based (like depreciation). A balance sheet also contains items some in cash form but most in non-cash form (like property, receivables, payables etc). When you convert one form of asset to another, say buying property a business might spend cash and obtain the asset – the net balance of the balance sheet doesn’t change since it converts one asset form to another.
One important measure of a company’s performance is how it manages it’s cash. Without cash (even though it may own a lot of assets on paper) a company cannot operate (bankruptcy is usually a sign that a company runs out of cash not assets – a company that owns a lot of property can still go bankrupt). The CFS details how much cash a company receives and how much it spent in a specific period as well as the net balance remaining.
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