• Unit 10: Cash Flow Preparation and Use

    In this unit, we will explore how companies manage cash flow. Most companies use the revenues they generated yesterday to pay today's and tomorrow's expenses. For example, some companies manage their cash and maintain enough reserves to pay their expenses when they are due. Others must obtain capital loans to pay their bills because they have seasonal sales or experience rapid growth and do not have enough savings to pay for the upfront costs to fund their expansion. While the company's income statement and balance sheet help monitor performance and their current financial condition, neither statement provides information about cash activity during a given time period.

    Companies must manage their cash wisely to accommodate this lag time between revenues and expenses, so they can pay their bills in a timely manner. In this unit, we focus on preparing a statement of cash flows, which gives important information about performance measures, cash on hand, and cash needed.

    Completing this unit should take you approximately 7 hours.

    • 10.1: Purpose of the Statement of Cash Flows

    • 10.2: The Types of Cash Flows

    • 10.3: Preparation of Cash Flow Statements

    • 10.4: Cash Flow Analysis

    • Unit 10 Assessment

    • Unit 10 Conclusion

      In this unit, you learned what a cash flow statement is and how it fits in the management accounting toolbox. Most companies create a cash flow statement as a part of their normal reporting documentation, either because of legal requirements or prudence. The cash flow statement's sections include the income statement, balance sheet, and statement of owner's equity and cash flow. With each accounting period (monthly or quarterly), the cash flow is updated to reflect actual sales and other relevant events. Managers need to be continually aware of their company's cash position. In the next unit, you will consider other metrics that managers should be aware of and use to monitor their company's economic health.