The paper "Cash Flows in Business Organizations" is a great example of a finance and accounting assignment. Cash generated from operations is significant in the sense that it shows whether a firm has the capacity to generate enough optimistic cash flow to sustain and expand on its operations or if the company will or will not require external financing (Epstein & Jermakowicz, 2007; p. 91). Cash generated from the operations is determined by making an adjustment to the net profit for transactions such as variations in the accounts receivable, depreciation and changes in inventory.
Therefore in the same period net profit cannot be equal to the cash generated from operations given that both variables are derived and applied separately. There are certain accounting effects that might be put into consideration when looking at a cash flow which will offer a clear reality of the business operations. For example, with a cash flow statement, there is the use of cash sales while an income statement where net profit is derived there is the use of credit sales (Barry, Eva and Jermakowicz, 2007; P.
93). Booking a huge volume of sales will give a huge enhancement to revenue, even though in case the firm is experiencing difficult times in collecting cash, then it might not be a true economic gain for the firm. On the contrary, the organization might be extremely profitable on the basis of cash flows but might be experience reduced net profit, in case it has plenty of non-current assets and applies calculation of depreciation based on accelerated depreciation. According to the International Accounting Standard number 7, the statement must be presented indirect method and an indirect method in presenting the operating cash flow.
The direct method of presenting operating cash flow depicts every main category of cash receipt and cash payment. The indirect method on the other hand makes adjustments on the loss or net income on accrual terms for the impact of the non-cash items. Barclays bank realized net cash flows from operating activities of £ 10.868 billion in 2013 and (£ 44.753) billion in 2012. The tremendous increase in the cash flow from the operating activities was attributed to a high percentage change in the operating assets and liabilities from 2012 to 2013.
Barclays Banking Group (2014). Financial Statements Report 2014.
Bodie, Zane; Alex Kane and Alan J. Marcus (2004). Essentials of Investments, 5th ed.
McGraw-Hill Irwin. p. 455.
Epstein, Barry J.; Eva K. Jermakowicz (2007). Interpretation and Application of
International Financial Reporting Standards. John Wiley & Sons. pp. 91–97
Helfert, Erich A. (2001). "The Nature of Financial Statements: The Cash Flow Statement".
Financial Analysis - Tools and Techniques - A Guide for Managers. McGraw-Hill. p. 42
HSBC Stock Exchange Announcement (2014) Financial statement report.
Wild, John Paul. (2007) Fundamental Accounting Principles (18th edition ed.). New York:
McGraw-Hill Companies. pp. 630–633.