Cash Flow Management

Written by Patricia Tunstall
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Cash flow management involves familiarity with the accounting system used by the company, familiarity with accounting terms, and understanding of the complexities of financial statements. Accountants produce three essential financial statements: balance sheet, income statement, and cash flow statement. Each of these reveals a crucial aspect of the business operation.

All three financial statements are summaries of the financial condition of the company. The balance sheet presents a company's assets, liabilities, and owners' equity. The income statement reports sales revenue and expenses. The end of this report presents the bottom-line profit.

Good Management Means Solvency

One of the primary duties of the accountant and the business manager in proper cash flow management is to keep accounts receivable in check. Money that is owed to the business will not help the company open for business every day. Business cash flow is not petty cash. Cash flow is essential to the solvency of the company.

One important reason for effective cash flow management is to enable the business to pay its debts and taxes. Another is to be able to repay the owners for their equity contributions. Finally, a company must thrive. In order to continue to grow, the company must invest in property, plant, and equipment, as fixed assets are referred to in the cash flow statement.


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