įor example, one could be spending cash on computer equipment, on vehicles, or even on a building one purchased. Investing (in the context of the cash flow statement) means the spending of cash on non-current assets. So yes, cash really is king - in the business world and even in accounting. And the cash flow statement, which shows us what the business has been doing with its cash - provides vital information. In real life this extreme situation would rarely occur, but this example serves to explain that the cash situation of a business is key.
And it could occur if additionally you weren't monitoring the cash flows of your business. It could occur if all or most of your sales have been made on credit. You may be wondering, "But how could that even occur?" Your business wouldn't survive very long in that kind of situation. The answer is that one could show the most fantastic performance according to the income statement, with huge profits, and yet have nothing remaining in the bank. Why Do We Need the Cash Flow Statement?īut why do we need the cash flow statement if we've already got the income statement? Just as it sounds, the cash flow statement is a statement (report) of flows of cash - both in and out of the business. As the business owner, you couldn't even pay yourself! Without cash, you can't pay bills, you can't expand the business by purchasing assets. And it is quite true, because cash is the lifeblood of the business. This is a common saying in the business world.
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