A systematic and crisp account of all-embracing cash transactions over a period of time in a company is called its Cash Flow Statement. The statement records all receipts and payment transactions, including accrued income from all operating activities, purchase and sale transactions of machinery, securities, property etc. and issuance, repurchase of long-term investments, property, plant and equipment and paid amount of taxes, interest et al. It also reports the exchange of significant items that did not as such involve cash.

As a cash flow statement does not include non-cash items like depreciation, goodwill, interest on loans and other non-investment activities, it is considered as a reliable and useful way of determining short-term liabilities for any organization. Besides recording various cash inflow and outflow transactions, the cash flow statement also reveals the net increase or decrease of cash within an organization during a p-

articular time period. It is a helpful means to learn about the financial strength of any organization so as to ensure timely and full payment to its staff and other immediate expenses. It is also a mutual trust building activity, as it reassures lenders about the ability of the company to repay and convinces investors to invest in the company upon determining its financial soundness. Cash flow statement is especially crucial for a new company, as it tracks cash inflow against cash outflow and help the company prevent shortage of funds.

Companies with big scale operations prefer to outsource the job to professional accountancy firms, as professional services facilitate timely and accurate analysis of financial soundness. This eventually improves creditability of the organization, as the company is able to dispense off all its current liabilities well within time.