Whenever you talk of the finances of any company or organization, one of the first things that come to the mind is the statement of cash flow. The cash flow statement or the statement of cash flow is the document that shows the financial transactions in the form of all the credits, debits or fund transfers. Hence it plays a vital role in understanding the true condition of any organization. It gives a transparent idea to any one from either inside or outside the organization about its financial stability.
There are many people who are interested in the cash flow statement of the organization. These people can be the stakeholders of the organization, some prospective investors who will take their investment decision based on the cash flow statement of the organization, prospective lenders who will decide whether to lend funds or not based on the organization's performance in the cash flow statement. Other than these, the employees working for the organization and the people handling the company's accounts are some other people who take note of the cash flow statement on a regular basis. The cash flow statement serves innumerable purposes. From giving information about the liquidity and cash flow of the company, to giving information about company's performance on the financial front and indicating the exact timings and amount of the cash flow, the statement of cash flow helps in many aspects.
There are many activities that collectively contribute to the statement of the cash flow, viz, operating activities that bring about some cash flow, investing activities which result into some kind of cash flow and also some financial activities which have an entry in the cash flow. There are many non-cash activities also which are part of the statement of cash and make it to the balance sheet of the organization. Some of these non cash activities are getting any asset on the lease, getting some assets and then releasing some of the shares in exchange to it and also converting the organization's debt into some kind of equity.
The International standard which looks over the statements of the cash flow is the International Accounting Standard 7, or IAS7. International Accounting Standard 7 has set many guidelines and rules for all the organizations to adhere to while creating their cash flow statements. One of IAS7 rules says that the cash flow statement must include the cash as well as the non cash statement. IAS7 also defines many activities as the financial activities, viz, repayment of any capital lease or the shares of the company or any payment made due to dividends.