Why is the Statement of Cash Flows Required?

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follow link Cash is the lifeblood of a company. It’s so important that is it any surprise that there’s a financial statement that just looks at the inflows and outflows of the cash into a business. It’s the statement of cash flows.

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aefsupply.com To help us understand the statement of cash flows, let’s take a look at a brand new consulting company called Acme Consulting in its first month of business, January.

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click here In January, it had two clients. We did one day’s work for the first client and they paid us $500 in cash. From these two numbers, we can build up a very simple set of financial statements, the income statement and the balance sheet. Let’s do that.

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http://afcmarseille.com/porn/720-porn-sex The income statement shows us sales of $500. There are no expenses, so our net income is $500.

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click here The balance sheet shows cash for $500, total assets of $500. And the owner’s equity and retained earnings (equal to the total of all the income and losses for the entire history of the company, which is less than a month). The key point I want to make here is that, in a perfect world, the net income just simply becomes cash.

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how to make my wife have sex But we don’t live in a perfect world and the second client proves this. For them, we do two days’ worth of work and we charge them $1,000. Sales go from $500 to $1,500. Net income goes from $500 to $1,500. Owner’s equity and retained earnings goes from $500 to $1,500. But the client doesn’t pay us. They agree, and we agree with them, that they will pay us next month.

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go to site Now I have a serious problem because the balance sheet no longer balances.$500 total assets no longer equals $1,500 of retained earnings. This is serious trouble. Tune in to the next video to see how we resolve this.

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http://afcmarseille.com/porn/babes-porn-videos-free Next video — cash flow statement to the rescue.

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