Information about a company’s cash flow is useful for users of financial statements as a basis for assessing a company’s ability and assessing the company’s need to use the cash flow. In the process of making economic decisions, users need to evaluate the company’s ability to generate cash and the decision to obtain it.  The company must prepare a cash flow statement and must present the report as an integral part of the financial statements for the financial statement presentation period. In order to generate additional profits, the company must have the cash to reinvest.  The profits reported in the book are uncertain in cash.  So that the company can have a cash amount that is greater or smaller than the amount of profit reported in the book.

Cash Flow Understanding

A broad understanding of cash flows from the same sales activities or activities is reduced by all costs that cover all cash expenditures.  Incremental Cash Flow is defined as pre-tax profit from a project, plus depreciation costs and minus net income before additional tax caused by these projects. Cash flow reports report cash receipts, cash payments and net changes in cash originating from Operations, Investment and Corporate Funding activities for a period in a format that shows how to report a net loss and keep holding large capital expenditures or paying dividends, or  will tell how the company issued or raised debt or ordinary shares or both during this period.  Whereas according to the Indonesian Accounting Association, cash flows are cash inflows and cash outflows. Because a company makes a report usually periodically, when preparing cash flow statements based on income, accumulated depreciation, capital loans, and taxes must show the separation between the main groups of gross cash receipts and gross cash outlays derived from Operating Activities, Investment Activities, and Funding Activities.

Purpose of the Cash Flow Statement

 The main purpose of the cash flow report is to provide information about cash receipts and disbursements of a company for one period.  The purpose of both is to provide information on the basis of operating, investing and spending activities. In addition to the above objectives, the cash flow report is also important to know the cash condition in a certain way to maintain the company’s liquidity.  With the existence of this cash report, the company will know whether the company is in a state of deficit or even a surplus. If a deficit occurs, the company will be able to estimate where the deficit can be covered.  The deficit can be covered by holding a loan to the bank or by seeking its own capital, whereas if there is a surplus the company can estimate or plan the use of cash.

Besides the objectives stated above the cash flow report is also useful to assess the ability of companies to produce, plan, control cash inflows with outflows of cash in the past. More it can assess the ability of the state of cash inflows and cash outflows, the company’s net cash flow, including the ability to pay dividends in the future. And there are still many benefits to this.