Chapter 3

Cash Flows and the Cash Flow Statement

In This Chapter

arrow Separating the three types of cash flows

arrow Figuring out how much actual cash increase was generated by profit

arrow Looking at a business’s other sources and uses of cash

arrow Being careful about free cash flow

arrow Evaluating managers’ decisions by scrutinising the cash flow statement

This chapter talks about cash flows – which in general refers to cash inflows and outflows over a period of time. Suppose you tell us that last year you had total cash inflows of £145,000 and total cash outflows of £140,000. We know that your cash balance increased by £5,000. But we don’t know where your £145,000 cash inflows came from. Did you earn this much in salary? Did you receive an inheritance from your rich uncle? Likewise, we don’t know what you used your £140,000 cash outflow for. Did you make large payments on your credit cards? Did you lose a lot of money at the races? In short, cash flows have to be sorted into different sources and uses to ...

Get Bookkeeping and Accounting All-in-One For Dummies, UK Edition now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.