Cash Flow Statement Essay Example | Topics and Well Written Essays - 500 words

Cash Flow Statement - Essay Example The secondary objective is to disclose information about the operating financing and investing activities of a company during an accounting period. The statement of cash flow gives an indication about the relationship between profitability and cash generating ability and thus the quality of profit earned. In brief, cash flow serves the following purposes: Under this method cash flow from operating activities is calculated on the basis of net profit as reported in the profit and loss account or balance sheet and is especially used when amount of sales is not given in the question. Few adjustments made under this method are as follows: For calculating operating profit before working capital changes, non cash and non operating items (such as depreciation, doubtful debts, dividend, and interest) are added back. The non operating incomes and gains are deducted from the net profit for the year. Decrease in current assets and increase in current liabilities is added back and increase in current assets and Decrease in current liabilities is deducted from the operating profit before working capital changes to arrive at cash generated from operations.