TAILIEUCHUNG - Ebook Mastering financial accounting essentials (11th edition): Part 2

(BQ) Part 2 book "Mastering financial accounting essentials" has contents: The statement of cash flows, ensuring integrity, financial statement analysis, answers. | CHAPTER 6 The Statement of Cash Flows A ll the journal entries are used to create either the balance sheet or the income statement. That is, every journal entry affects either the balance sheet or the income statement. The statement of cash flow (also called the statement of cash position) relies on the same financial accounting information to document changes in the cash position over the most recent accounting period. The statement of cash flows measures the sources and uses of cash. IMPORTANCE OF CASH Companies must manage cash to stay in business, to be able to pay bills on time, to satisfy present and future lenders, and to maximize the price of the common shares of the company. Companies need cash to satisfy the short-term and longer-term needs of the business. Over the short term, companies must buy an array of goods and services to run their business properly. The company must buy materials, labor, and capital equipment. Companies can delay paying for these goods and services for a time but must pay in cash soon enough. Young businesses may fail because they run out of cash. A company can experience a shortage of cash. Any business can experience financial challenges if it does not have the ability to generate sufficient cash to continue operating. The securities markets and the banking industry can assist companies in managing their cash, including borrowing or investing cash to match the company’s immediate needs. The financial markets can also assist the company to get through periods when a company’s cash is inadequate. Both lenders and investors prefer a company that can generate cash needed for current operations and expansion. 67 68 MASTERING FINANCIAL ACCOUNTING ESSENTIALS AN INTUITIVE WAY TO TRACK CASH Accountants could reanalyze journal entries to learn about what parts of the business are producing cash and what parts of the business are using cash. In a sense, such an analysis is not necessary. All the debits and credits already are included

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