MAFundamentals defines the foundation of Management Accounting from cost concept, classification and analysis. It provides general discussion on COST, VOLUME, PROFIT, VARIANCE and other information necessary for performance measurement, decision making and pricing.

Cash Flow Analysis

One technique in Financial Statement Analysis, Cash flow analysis is a detailed study of the net change in cash as a result of operating, investing, and financing activities during the period.


The Statement of Cash Flows - the basic financial statement prepared and used in analyzing cash flows. The report includes cash receipts, cash payments and the net change in cash. These are results from operating, investing, and financing activities of the company during a certain period.

Cash Flows - include cash and cash equivalent


Cash Equivalents - short-term, highly liquid investments that are:
  1. readily convertible to know amounts of cash; and
  2. so near their maturity  date that their market value is relatively insensitive to changes in interest rates.
CLASSIFICATION OF CASH FLOWS

1. Operating Activities - cash effects of transactions that create revenues and expenses. Operating activities generally relate to changes in current assets and current liabilities.

Examples:
Cash Inflows: Sale of goods/services; interest income received on loans, dividend income received on equity securities
Cash Outflows: payment to suppliers; salaries and wages paid to employees, taxes paid to the government, interest expense paid to creditors, and payments of other expenses

2. Investing Activities - generally relate to changes in non-current assets.

Examples:
Cash Inflows: Sale of property, plant, and equipment; sale of debt or equity securities of other firm; collection of principal on loans
Cash Outflows: purchase of property, plant, and equipment; purchase of debt or equity securities of other firm; lending of money to other firms

3. Financing Activities - relate to changes in long-term liabilities and stockholder's equity accounts.

Examples:
Cash Inflows: Sale of company's own stocks; issuance of bonds or notes
Cash Outflows: payment of dividends to stockholders, redemption of long term debt, reacquisition of capital stock

SIGNIFICANT NON-CASH ACTIVITIES
These are not  reported in the body of the statement of Cash Flows. However, these are reported as a separate schedule at the bottom of the Statement of Cash Flows or in a separate note or supplementary schedule to the financial statements.

FORMAT OF THE STATEMENT OF CASH FLOWS
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