Working with Financial Statements

Working with Financial Statements

1. Cash Flow and Financial Statements

   • Firms generate cash by selling a product, an asset or a security and they spend it in paying for materials, labor to produce a product, purchasing assets, payment to creditors and owners
     • Cash flow from assets= Cash flow to creditors + Cash flow to owners
     • Sources and uses of cash
       • Activities that bring in cash are called SOURCES OF CASH
         • A decrease in an asset account or an increase in a liability
       • Activities that involve spending cash are calle USES OF CASH or APPLICATIONS OF CASH
         • An increase in a lef-side or a decrease in a right account
     • The statement of cash flows
       • A firm's financial statement that summarizes its sources and uses of cash over a specified period