Question

Describe how you can apply the concepts of statement of cash flow to your personal life.

Answer 1

Cash Flow Statement shows the inflows and outflows of cash and how each transaction affects the availability of funds. There are some expenses which are incurred now but paid later. These expenses do not lead to outflow of cash. When paid, it leads to outflow of cash though the benefits were derived in the earlier period.

In our personal life also, we need cash for a number of activities just like business.Some expenses are paid as and when they are incurred while some other are paid later or in advance. Timing of payment affects the cash flow position. Cash has to be managed in a way that there is always some minimum required cash is available.

Also, Cash flow statement shows how to reconcile the changes in cash from previous period to current period. Same can be applied in personal life. Cash Balances should be reconciled by monitoring all activities which led to the inflow and outflow of cash. We invest cash, borrow money/pay back in our personal life as well, hence the concept of statement of cash flows can very well be applied to personal life as well.