Unit XI The Statement of Cash Flows

Grammar: Prepositions

Wordlist

accounts receivable	кредиторська заборгованість	кредиторская задолженность
accounts payable	дебіторська заборгованість	дебиторская задолженность
cash payment	платіж готівкою	наличный платеж
consolidated statement	зведена звітність	сводная отчетность
financing activities	фінансова діяльність	финансовая деятельность
inflow	приплив, надходження	приток, поступление
investing activities	інвестиційна діяльність	инвестиционная деятельность
issuance of bonds	випуск облігацій	выпуск облигаций
monetary assets	грошові кошти	денежные средства
operating activities	основна діяльність	основная деятельность
sale proceeds	прибуток від продажу	выручка от продажи
similarly	так само, подібним чином	так же, подобным образом
subtract	віднімати	вычитать

I. Guess the meaning of the following international words.

Company, results, group, invest, finance, category, illustrate, balance, dividend, operation, corporation.

II. Read the text and determine the three major groups of activities cash flows result from.

Companies also prepare a third financial statement, the statement of cash flows. Cash flows result from three major groups of activities: (1) operating activities, (2) investing activities, and (3) financing activities. These three categories are illustrated in Table 3.

This is very different from an income statement. Cash amounting to $19 was received from the sale of the investment; the income statement included only the $5 gain, the difference between the sale proceeds and $14, the amount at which the investment had been shown in the balance sheet before it was sold. Since net income, the top lines in Table 3, included the $5 gain, the company couldn’t include the full net income and the full cash proceeds from the sale of the investment – that would have counted the $5 twice. Instead, any Company subtracted the $5 from net income (line 5 in the table) and reported the full $19 below, under cash from investing activities.

The income statement differs from the cash flow statement in other ways, too. Cash was received from the issuance of bonds and was paid to shareowners as dividends; neither of those figured in the income statement. Cash was also paid to purchase equipment; this added to the plant and equipment asset but was not subtracted from current revenues because it would be used for many years, not just this one.

Cash from operations is not the same as net income (revenues minus expenses). For one thing, not all revenues are collected in cash. Revenue is usually recorded when a customer receives merchandise and either pays for it or promises to pay the company in the future (in which case the revenue is recorded in accounts receivable). Cash from operating activities, on the other hand, reflects the actual cash collected, not the inflow of accounts receivable. Similarly, an expense may be recorded without an actual cash payment.

To avoid the problems faced a firm must plan its cash flow, it has to know what its cash needs will be. By developing a detailed financial plan, management helps to ensure the long-run success of the firm. The firm analyzes all of the cash changes that have occurred from operating, investing, and financing and learns the net change in cash position. The changes in cash flows statement also gives the firm some insight into how to better handle cash so that no cash flow problems occur in the future.

The statement of cash flows shows the flow of cash into and out of a business during a period of time. This statement indicates net cash flow (either inflow or outflow) from operating, investing, and financing activities. Cash flow from operations measures the cash results of the firm’s primary revenue-generating activities.