The term cash and cash equivalents includes: currency, coins, checks received but not yet deposited, checking accounts, petty cash, savings accounts, money market accounts, and short-term, highly liquid investments with a maturity of three months or less at the time of purchase such as U.S. treasury bills and commercial paper. The items included as cash and cash equivalents must also be unrestricted.
The amount of cash and cash equivalents will be reported on the balance sheet as the first item in the listing of current assets. The change in the amount of cash and cash equivalents during an accounting period is explained by the statement of cash flows.
The Petty Cash account and its balance could be listed separately as one of the first assets in the current asset section of the balance sheet. This is likely the case at smaller companies.
At larger companies, the balance in the Petty Cash account is often combined with the balances in the other cash accounts and the total of the cash accounts will be reported as Cash or as Cash and Cash Equivalents. You will find Cash and Cash Equivalents as the first item in the current asset section of the balance sheet.
A money market account is a current asset unless it is restricted for a long-term purpose. The amount of an unrestricted money market account will likely be reported on the balance sheet as part of a company's cash or its cash and cash equivalents.
The purpose of the cash flow statement or statement of cash flows is to provide information about a company's gross receipts and gross payments for a specified period of time.
The gross receipts and gross payments will be reported in the cash flow statement according to one of the following classifications: operating activities, investing activities, and financing activities. The net change from these three classifications should equal the change in a company's cash and cash equivalents during the reporting period. For instance, the cash flow statement for the calendar year 2013 will report the causes of the change in a company's cash and cash equivalents between its balance sheets of December 31, 2012 and December 31, 2013.
In addition to the cash amounts being reported as operating, investing, and financing activities, the cash flow statement must disclose other information, including the amount of interest paid, the amount of income taxes paid, and any significant investing and financing activities which did not require the use of cash.
The statement of cash flows is to be distributed along with a company's income statement and balance sheet.
The cash flow statement, known formally as the Statement of Cash Flows, reports a company's change in cash and cash equivalents from one balance sheet date to another. The cash flow statement classifies the amount of the change according to operating, investing, and financing activities. The cash flow statement has been required by the Financial Accounting Standards Board since 1988, when it issued its Statement No. 95. You can read about the statement of cash flows at www.FASB.org/st.
Prior to 1988, accountants prepared a funds flow statement. Generally, the funds flow statement reported on the change in working capital from one balance sheet date to another.
A comparative balance sheet usually has two columns of amounts that appear to the right of the account titles or other descriptions such as Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, etc. The first column of amounts contains the amounts as of a recent moment or point in time, say December 31, 2012. To the right will be a column containing corresponding amounts from an earlier date, such as December 31, 2011. The older amounts appear further from the account titles or descriptions as the older amounts are less important.
Providing the amounts from an earlier date gives the reader of the balance sheet a point of reference—something to which the recent amounts can be compared.
What is the statement of cash flows?
The statement of cash flows is one of the main financial statements. It is to accompany the income statement, balance sheet, and statement of stockholders' equity. The statement of cash flows (also known as the cash flow statement) reports
· the major sources and uses of cash during the period of the income statement
· a reconciliation of the change in an organization's cash and cash equivalents (which are reported on the beginning and ending balance sheets)
· supplementary information including the amount of income taxes paid, the amount of interest paid, and significant noncash investing and financing activities (such as issuing common stock in exchange for land)
The statement of cash flow is important because investors, lenders, financial analysts, and others are interested in an organization's major cash inflows and outflows. (This information is not available from the income statement because the accrual basis of accounting requires that revenues be reported when earned and expenses be reported when incurred.)
The statement of cash flows reports cash inflows as positive amounts and the cash outflows as negative amounts. They are reported in one of the three sections of the statement of cash flows: operating activities, investing activities, and financing activities.