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Siksha Srijan Academy of Technology & Management BHM (1 Semester) Accountancy Objectives of Cash Flow Statement

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33 views2 pages

Siksha Srijan Academy of Technology & Management BHM (1 Semester) Accountancy Objectives of Cash Flow Statement

Uploaded by

Joy Bhowmick
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© © All Rights Reserved
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SIKSHA SRIJAN ACADEMY OF TECHNOLOGY & MANAGEMENT

BHM (1ST SEMESTER)

ACCOUNTANCY

 Objectives of Cash Flow Statement

1. Highlighting cash flow from different activities

2. Short-term Planning

3. Cash Flow information helps to understand liquidity

4. Efficient cash management

5. Prediction of sickness

6. Comparison with budget

7. Cash position

 Limitations of cash flow statement - final

Although cash flow statement has a number of advantages, it suffers from


the following limitations:

1. Cash balance as per cash flow statement may not give real picture of
liquidity as it gets easily affected by postponing purchases, etc.;

2. 'cash' is used to signify fund in a narrow concept. It does not give a


complete picture of the financial position of the concern; even the term
'cash' is not precisely defined;

3. Comparison over a period of time can be misleading. A company cannot


be said to be better off in the current year as compared to the previous
year just because its cash flow has increased

 Importance of cash flow statement to a business enterprise

i. It shows the real liquidity position of an enterprise.

ii. It shows the ability of an enterprise to pay short term maturing


obligations as and when they fall due.

iii. It indicates the ability of an enterprise to pay cash dividends to its


shareholders

iv. It is an important tool in cash management of an enterprise.

v. It indicates the main sources of cash for an enterprise

vi. It is important for working capital management

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