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Balance Sheet Research Paper

1301 Words6 Pages

Can you cite examples of how a firm's Balance Sheet accounts activity from one year to the next will determine the cash flow for the various accounts?
Answer:
Keown, Martin and Petty (2011) states that a firm’s income statement reports the results from operating the business for a period of time, such as one year. The firm’s balance sheet provides a snapshot of the firm’s financial position at a specific point in time, presenting its asset holdings, liabilities, and owner supplied capital (stockholders equity) as of a previous date. Assets which includes cash, accounts receivable, inventory, investments, land, buildings, equipment, some intangible assets. The balance sheet or Statement of Financial position is directly related to the income …show more content…

It also gives analysts the ability to use information for setting up projections of future cash flows. By summarizing key changes in financial position during a period of time cash flow statement serves to highlight priorities of management. For instance an increase in capital expenditure and development costs may indicate a higher increase in future revenue streams. Whereas a trend of excessive short term investment may suggest lack of viable long term opportunities for investments. The statement of cash flow is linked to the balance sheet it explains the effects of change in cash and cash equivalents. The balance at the beginning and end of the reporting period in terms of the cash flow impacts changes within the components of balance sheets including assets, liabilities and equity reserves. Increases and decreases are seen in a cash flow statement due to changes in share capital reserves thus arising from share capital issues and redemption; Therefore changes in retained earnings due to net profit or loss shown in the income statement after adjusting non-cash items and dividend payments; Change in long term loans due to receipt of repayment of loans; Working capital changes as reflected in the increase or decrease in net current assets recognized in the balance sheet; change in non-current assets due to receipts and payments upon the acquisitions and disposals of assets investing activities. Statement of Cash Flows presents the movement in cash and cash equivalents over the period. Cash and cash equivalents generally consist of the following Cash in hand, cash at bank and Short term investments that are highly liquid and involve very low risk of change in value. As the income statement, and balance sheet are prepared by an accountant it is important to adjust the amounts extracted from the financial statements because of

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