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Nature of Cash Flow Statement Video Lecture | Accountancy Class 12 - Commerce

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FAQs on Nature of Cash Flow Statement Video Lecture - Accountancy Class 12 - Commerce

1. What is the purpose of a cash flow statement in commerce?
Ans. A cash flow statement in commerce is used to provide information about the cash inflows and outflows of a business during a specific period. It helps stakeholders understand the sources and uses of cash, assess the company's liquidity, and evaluate its ability to generate future cash flows.
2. How is the cash flow statement different from other financial statements?
Ans. The cash flow statement differs from other financial statements, such as the income statement and balance sheet, as it focuses solely on cash transactions. It provides a detailed breakdown of cash inflows and outflows, while the income statement shows the company's profitability, and the balance sheet reflects its financial position at a specific point in time.
3. What are the three main categories of cash flows reported in a cash flow statement?
Ans. The three main categories of cash flows reported in a cash flow statement are operating activities, investing activities, and financing activities. Operating activities include cash flows from the company's core business operations, such as sales and expenses. Investing activities involve cash flows related to the acquisition or sale of long-term assets. Financing activities include cash flows from obtaining or repaying capital, such as issuing stocks or bonds or paying dividends.
4. How can a negative cash flow impact a business?
Ans. A negative cash flow indicates that a business is spending more cash than it is generating. This can lead to financial difficulties, as the company may struggle to meet its obligations, such as paying suppliers or employees. It may also limit the company's ability to invest in growth opportunities or make necessary purchases. Negative cash flow over an extended period can even lead to bankruptcy if not addressed.
5. What are some indicators of a healthy cash flow for a business?
Ans. A healthy cash flow for a business is characterized by positive cash flow from operating activities, indicating that the company's core operations are generating enough cash to cover expenses and investments. Additionally, a healthy cash flow should have a balance between cash inflows and outflows from investing and financing activities. Sufficient cash reserves and the ability to meet financial obligations on time are also indicators of a healthy cash flow.
47 videos|117 docs|56 tests

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