Cash Flow Statement

The cash flow statement that a corporation must produce annually should be in accordance with the generally accepted accounting principles (GAAP) that are used throughout the business world. The Securities and Exchange Commission has the authority to set standards for financial accounting and reporting, but it has turned over that responsibility to the Financial Accounting Standards Board (FASB) in the private sector. GAAP used in the United States are so well-respected that international rules are being implemented.

Most business organizations are required to file an annual financial analysis consisting of two sections--financial statements and disclosures. The financial statements must consist of the income statement, the balance sheet, and the cash flow statement. The latter includes summaries of the cash inflows and outflows for assets and liabilities.

What the Statement Shows

This statement reveals cash flow in three areas--operating, investing, and financing activities of the business. For each area, assets and liabilities, or cash inflows and outflows, are detailed. The cash balance of the business is derived from these figures under operating activities.

The statement, then, tells those inside the business and those outside the business--shareholders and the public--how the company is doing financially. Besides being mandated by law, financial reporting tracks each financial subheading so a manager or accountant can discern problems or strengths in the direction the business is taking. Managers and executives can then take measures to control the developing problem, or decide to continue with the decisions that have increased the company's profitability.