ABBA NETWORK

Statement showing the sources and uses of cash prepared from the historical data, i.e. Income statement is called Cash-Flow Statement. It simply reveals the

inflow and outflow of cash during the previous period. Such a statement can be prepared for a year, half year, a month, a week or for any other duration. Its main function is to explain the causes of change in cash balances of the firm for two different dates.

Conceptually, there is no difference between a Cash-Flow statement and a cash budget, statements showing the sources and uses of cash can be prepared on the basis of historical data as well as on the basis of forecasts. Statements prepared on the basis of historical data are called Cash-Flow statements while based on projected data for future are known as Cash Budget.
The Cash-Flow budget is used to project cash needs: to identify cash surpluses and to highlight possible critical points in the income and outgo of cash.

Thus cash-flow statement is a useful technique of historical financial analysis while cash budgets is an indispensable technique of financial forecasting.

As we know the term ‘fund’ has been defined in a number of ways. Some financial experts interpret ‘fund’ as ‘cash’ only and fund-flow statement - prepared on this basis is called a cash flow statement. In this type of statement only inflow and outflow of cash is taken into account. On the other hand, some experts interpret ‘funds’ as money value in whatever form it may exist in the company.

It is conceived as ‘all financial resources’ and it extends the concept include all the current assets or financial resources. Thus, the narrow definition of fund, such as cash- flow, leads us to the concept of hard cash It omit, such items which do not directly affect cash or workingcapital. But in a broader sense, the assets of a firm represent the net uses of funds and its liabilities and net worth represent net resources.

The main object of cash-flow analysis is to show the causes of changes in cash balances. The Funds-Flow Statement reveals the causes of change in net working capital and informs the management on the liquid position of .the company. But, when management is interested to know about the movement of cash and the availability of cash, the cash-flow analysis provides this information to management.

Cash-flow analysis is not only concerned with the good or bad management of cash, it is deeply concerned with the liquidity position of the firm. In a cash-flow statement, the term ‘fund’ is used to mean only cash and does not include even most liquid current assets (but not cash itself) like readily reliable account receivables. Since cash-flow statement is made to show the impact of financial policies and financial procedures on the cash position of the firm, it takes into consideration all transactions that have a direct impact upon cash.
The next main object of cash-flow analysis is to throw light on the factors contributing to the reduction of balance of cash inspite of increase in profits of vice versa. Cash-flow analysis is of particular importance in short-range planning. It helps the management in short-term financial decisions relating to liquidity and ways and means position.