Hello, this is Huw Morgan from the Alliance Manchester Business School.
This is the 10th talk in the series of lectures on accounting records,
and this session discusses the importance
of the cash flow statement in explaining the movement
of cash between accounting periods and how a cash flow statement is constructed.
The income statement explains how business has generated profit in the period,
explaining the movement in equity between
the opening and closing balances in a statement of financial position.
The cash flow statement explains the movement in
cash between the same two statements of financial position.
Whilst generating profit is of course important,
it's probably more important,
particularly in the short-term,
to ensure that the business has sufficient cash balances.
Profit represents the difference between revenue and expenses for the period,
but may have little relation to the cash generated for the period.
The cash flow statement is based upon movements in cash and cash equivalents.
Cash relates to notes and coins in hand
and deposits in banks that are accessible on demand.
A bank overdraft is a part of cash,
it's a negative cash balance.
And cash equivalents a short-term, highly liquid investments,
readily convertible to cash held to meet short term
needs rather than investment purposes.