Question

Outline the differences between of a cash flow statement and a cash budget and explain why a cash flow statement is important to the shareholders. Give reasons to support your answer.

Answer 1

Differences between of a cash flow statement and a cash budget:

1. Cashflow statement is based on the past data whereas Cash budget is prepared on projections for future pweriod

2. Cashflow statement usually prepared yearly once whereas cash budget is prepared quartely

3. Cashflow statement useful to understand cash actual movement in past whereas cash budget is useful for cash planning in the future.

why a cash flow statement is important to the shareholders.

For any company cashflow is very important for its day to day operations. Eventhough a company is profitable and if company doesnot have proper cashflows it will impact its operations since it cannot pay salaries etc. hence company might go for shutdown.

Cashflows is very important to understand how much profits of a company actually converted into cash

and also to understand cash investments in PPE/ other investments and also financing commitments.