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A Look Into Cash Flows.

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A look into cash flows
The reason cash flows are a necessity is actually a number of reasons, one of them being that balance sheets which contain retained earnings and as well as an income statement can only tell you so much information. These documents basically tell you how you got where you are when it comes to funds, but they only do this by scratching the surface with quick ledgers that state the amount of money and what it is for or about. A statement of cash flows goes much deeper as it details receipts, payments and changes from investing along with financing and operating over a period of time. These are usually done over what are called quarters which in accounting terms means a 1/4th of the year. One of the more common categories of cash flows really depend on the kind of business, for example a retail store will have lots of operating activities which are forms of activity which change revenue with cash. A good example of this is of course a costumer or better yet costumers purchasing products from the store, this directly effects revenue as the business is taking in cash. This also means that operating activities account for losses of funds such as various expenses involving cash transactions such as paying employees. What can become sort of confusing is the second category which is the investing activities step. When a company acquires property or collects on loans, this would go under this category, but what exactly classifies as an investment? This is a grey area as in the case of a car dealership. When they purchase cars are these investments that are purchased? Or does this go under category one of operating activities? After all they have to do this which is an expense to operate, but the real question here would be did they make the purchase with cash? Or was it more of a loan to be paid off at a later date after the cars are sold? That is…...

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