Chapter 7

Chapter 7: Managing The Cash Flow

Tip:“Never take your eyes off the cash flow because it’s the life blood of the business.” (Richard Bradson. Founder of Virgin Group)

Cash Flow is the increase or decrease in the amount of cash and cash equivalent resulting from any business dealing. When an accounting period ends, the trading profit and loss account plus the balance sheet are calculated.

These two accounting statements do not tell us clearly about the movement of cash and its application in the accounting period. A third financial statement known as a Cash Flow Statement is always prepared in accordance with an International Accounting Standards Seven (IAS 7).

Cash Flow statements emphasize the liquidity position of any organization. They also explain the reasons for such inflows and outflows of cash during the period. It provides an explanation for increases and decreases in cash and cash equivalent.