…The Importance of Cash Flow

…The Importance of Cash Flow

November 29, 2016

…The idea is to create a detailed report of cash activity. It is a “cash log” for the fiscal period that shows in a great detail what happened in a cash account.

One thing that you have to remember is that, when accountants refer to cash, it is not just cash sitting in a bank account, it also means cash equivalents, instruments that can be easily converted into cash. They include: cash in the bank account, commercial paper (it is a short term loan), investments that mature in less than three months, CDs, money market accounts and US T-bills. They are all listed in a current assets portion on the balance sheet.

As you can see, even though accrual method is accepted as GAAP in US, cash makes a huge difference in the operations of the company.

Websites like the author of this artilce offer number of resources for learning accounting in the form of articles, blogs and other literature. Books like Accounting for Non-Accountants, 2nd edition, by Dr. Wayne Label, CPA present very simple concepts on accounting and give good explanations that help beginners to learn accounting. It is a source that non-accountants can use to get familiar with the profession and the problems it faces as far as accounting fraud and ethics are concerned.

I hope article has inspired you to get involved with an accounting profession. It is a very good tool for every businessman to learn and master. It will open your eyes to a complex world of business analysis that will improve your financial performance.

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