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Financial statement

In financial accounting, a cash flow statement, also known as statement of cash flows, 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 out of the business. 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
Company Directors, who are responsible for the governance of the company, and are responsible for ensuring that the company does not trade while insolvent
Shareholders of the company.

International Accounting Standard 3 specifies the cash flows and adjustments to be included under each of the major activity categories.

Under IAS 7, non cash investing and financing activities are disclosed in footnotes to the financial statements. Under US General Accepted Accounting Principles (GAAP), non cash activities may be disclosed in a footnote or within the cash flow statement itself. Non cash financing activities may include: The indirect method is almost universally used, because FAS 95 requires a supplementary report similar to the indirect method if a company chooses to use the direct method.

The indirect method uses net income as a starting point, makes adjustments for all transactions for non cash items, then adjusts from all cash based transactions. An increase in an asset account is subtracted from net income, and an increase in a liability account is added back to net income. This method converts accrual basis net income (or loss) into cash flow by using a series of additions and deductions.