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The cash flow statement keeps track of all business expenses that require cash. The first section, operating activities, contains all the information about cash operating costs. These costs come from a company’s financial accounting information; in short, there is no real concern about whether the elements are fixed or variable in nature. The statement simply reports the amounts of cash operating costs and whether the business had an inflow or outflow of cash in this section during a given period. Here there are several types of cash expenses, such as assets, accounts payable and other current liabilities.
Assets can be one of the largest pools of cash operating costs, especially for a manufacturing or retail business. Items included here are accounts receivable, inventory, supplies, prepaid assets, and other current assets. These items are commonly used in normal business operations, and each individual group is expected to last less than 12 months. On the statement of cash flows, outflows represent the actual money spent on these items. Each individual group has its own line and the total amount spent during a certain period, usually a month.
Accounts payable represent items that a company purchases on account, with the intention of paying the supplier at a later date. Common inclusion here for cash operating costs includes bills, salaries, payroll, interest, and taxes payable. Cash usage occurs when a business pays off the previous balance on any of these items in the current month. Similar to the assets described above, a single line item represents each reimbursement to reduce these cash operating costs. However, an increase in an accounts payable account will decrease cash flow, as this indicates money spent by the business.
Other current liabilities is a final section, detailing cash operating costs. These items can be unearned income or any other current liabilities that a business incurs. Accountants list each item that is a cash operating cost but does not meet one of the criteria in the above categories. Special and one-of-a-kind items may also be here, so accountants can inform stakeholders of significant expenses the company pays to run the business. This may require disclosures, if necessary, to inform interested parties of the nature of significant cash reductions.
The cash flow statement is for internal and external stakeholders. Accountants may prepare other reports to itemize a company’s cash operating costs. These less formal reports often address the needs and demands of internal stakeholders. The format and information listed can include any number of company numbers based on standard management accounting processes.