PAPERS

FINANCIAL ACCOUNTING

Arranged by :

Johnsen klemens Wisan (2113037)

Accounting major
Faculty of Economics and Business
Atma Jaya Makassar University

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THE IMPORTANCE OF USING THE STATEMENT OF CASH FLOWS
ASSESSING COMPANY LIQUIDITY
ASTRACTION
Cash is the most current asset of a company, used to finance operational activities
carried out by the company. Due to its highly liquid nature, a report detailing the
use of cash is required. The higher the operating net cash flow, the more liquidity
will increase. Investment cash flow partially has no effect and is not significant to
liquidity. The relationship between cash flow and liquidity is that the value
generated from cash flow can help users to evaluate liquidity. That by looking at
the cash flow statement, one can find out whether the company's liquidity
conditions are strong or illiquid. Impact of Not Making a Statement of Cash Flows
One of the impacts that can occur is that companies experience difficulties when
developing their business. Entrepreneurs cannot get a clear picture of cash flow and
can only speculate on the profit and loss experienced by their business.
Management and company leaders cannot see cash flow incoming or outgoing
activities directly.

Keywords: Cash flow, liquidity, net profit.

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CHAPTER I
PRELIMINARY

A. Background
In today's world many businesses are progressing and developing. One of the
factors in this development is the financial sector which has an important role
for the company, this field will produce financial reports. This report will
present complete information on the results of all company activities during
one period. The cash flow statement presents the amount of money generated
from several activities, such as operating, investing and funding activities. The
cash generated from each activity is very important for the company to know,
this is because the cash flow statement will assess how much each of these
activities contributes to cash in the company.
Every company needs a cash flow statement to be able to pay attention to
business flows that are able to show the progress of business activities being
managed from the previous period to the present. Through this data, companies
can find out the progress or setbacks of financial conditions experienced at a
certain time. The information contained in the cash flow report will be analyzed
as a basic reference in making decisions.
B. Problem Formulation
1. What is meant by a cash flow statement and its functions?
2. What are the components and methods of calculating cash flow
statements?
3. What is the relationship between cash flow statement and company
liquidity?
4. What are the benefits and impacts of the cash flow statement for the
company?
C. Purpose
1. To find out what a cash flow statement is and its function.
2. To know the components and methods of reporting cash flows.

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3. To find out the relationship between cash flow statements and company
liquidity.
4. To find out the benefits and impact of cash flow statements for the
company.
D. Benefits
1. Add knowledge about cash flow statements and their benefits.

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CHAPTER II
DISCUSSION

A. Definition and Function of Statement of Cash Flows

Cash flow is a breakdown of the company's cash inflows and outflows on a
daily, weekly and within a certain time frame. According to Financial
Accounting Standards (SPAK) No. 2, the notion of cash flow is a report on
cash inflows and cash outflows or cash equivalents. The statement of cash
flows must report cash over a specified period and are classified according to
financial operating, investing and financing activities. In the book Practical
Guide to Understanding Financial Statements by Leny Sulistiyowati (2010:
51), explains that receipts (sources) and disbursements (uses) of cash in
company activities during a certain period and are classified according to
operating activities, investing and funding. according to the Financial Services
Authority, the definition of cash flow is the flow of funds that reflects the
movement of funds through a bank.
Functions and objectives of cash flow statements Cash flow functions that are
beneficial to a company include:
• To predict the next period's cash flow based on current period data.
• As a basis for decision-making financial managers or company
directors to improve company performance.
• To determine the company's ability to pay dividends and liabilities.
• Can know the net profit and determine the size of a company's success.
The main purpose of preparing a cash flow report is to provide relevant
information regarding cash receipts and disbursements activities during a
certain period. Checking Relations Between Divisions In a company, of course
there are several divisions that manage its operations. The linkages of
cooperation between each division must certainly be examined thoroughly
periodically in order to know the level of quality. Basis for Decision Making
The cash flow report contains a number of information that has a very

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important role and can influence decision making. With the report data, the
basis for decision making can have clear directions.

B. Components and Methods of Statement of Cash Flows

The cash flow report is composed of several main components quoted from the
Practical Guide to Understanding Financial Statements by Leny Sulistiyowati
(2010:52).
• Cash Flow from Operating Activities. This component comes from
activity transactions that affect profit and loss and net. This transaction
includes the company's income and expenses. Such as cash receipts
from sales, payments, interest, operating expenses, and income taxes.
• Cash Flow from Investing Activities. Investment cash flow is the
income and expenses associated with a company's long-term
investment in the future. Examples are the buying and selling of fixed
assets, intangible assets, and long-term investments.
• Cash Flow from Funding Activities. Cash that comes from shareholder
funding in a company. For example, dividend payments, issuance of
shares, bonds, and repayment of credit from banks.
• Cash and cash equivalents. The amount of net cash obtained from or
used for the three activities above, namely operations, investing and
financing, must be the same as the amount of change in the initial cash
and cash equivalent account balances compared to the ending balance
sheet.
Methods for Preparing Cash Flow Statements To present cash flow statements,
it can be done in two ways, namely the direct method (direct) and the indirect
method (indirect). The difference between the two lies in the presentation of
data originating from operating activities.
Direct Method (direct)
In direct presentation, operational activities will be grouped into several
categories. Later these activities will be broken down into two types of cash
flows, namely outflows or inflows. The advantage of using this method is that

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information on sources of funds and cash usage can be seen directly. Cash
flows that are categorized into several groups can be seen more clearly and are
easy to understand.
Indirect Method (indirect)
Cash flow in operating activities is determined by the process of correcting net
income that is already in the income statement. So that the indirect method
focuses more on existing data on the balance sheet and income statement. In
this method, cash flow from operational activities is determined by making
corrections to various transactions originating from past and future cash
payments and receipts for the company's operations. Matters regarding income
and expenses related to investment cash flows such as depreciation costs also
need to be corrected. The advantage of this method of presentation is that the
data is more focused on the difference between net income and cash flow from
the company's operations. Moreover, through this method, companies can get
the relationship between income statements and statements of cash flow, and
balance sheet.

C. The relationship between the Statement of Cash Flows and Company

Liquidity
According to (Harahap, 2017) cash is the most current asset of a company, used
to finance operational activities carried out by the company. Due to its highly
liquid nature, a report detailing the use of cash is required. The results showed
that operating cash flow partially had a positive and significant effect on
liquidity. The higher the operating net cash flow, the more liquidity will
increase. Investment cash flow partially has no effect and is not significant to
liquidity. The relationship between cash flow and liquidity is the value
generated from cash flow can help its users to evaluate liquidity. That by
looking at the cash flow statement, one can find out whether the company's
liquidity conditions are strong or illiquid.

D. Benefits and Impact of Statements of Cash Flows for Companies

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for some of the benefits of cash flow statements:
• The cash flow statement will help prepare the company's strategy in the
future (the future).
• Can see (monitor) the ability of the company in various aspects. For
example, the company will be able to see the company's ability to pay
employee salaries, distribute dividends and others.
• Can find out the net profit earned by the company From the company
report, you will be able to find out the net profit generated, including
the company, of course you can see the company's income and expenses
from the net profit generated in the report.
• Knowing the company's ability to manage its cash flow The cash flow
statement is a means to see whether the company's ability to make
progress or not. Of course this will be a reference for the company to
find out the company's current condition and help the basis for
preparing the company's plans for the future.

Impact of Not Making a Statement of Cash Flows One of the impacts that can
occur is that companies experience difficulties when developing their business.
Entrepreneurs cannot get a clear picture of cash flow and can only speculate on
the profit and loss experienced by their business. Management and company
leaders cannot see cash flow incoming or outgoing activities directly.

Electronic copy available at: [Link]

CHAPTER III
CONCLUSION
Cash is the most current asset of a company, used to finance operational
activities carried out by the company. Due to its highly liquid nature, a report
detailing the use of cash is required. The higher the operating net cash flow,
the more liquidity will increase. Investment cash flow partially has no effect
and is not significant to liquidity. The relationship between cash flow and
liquidity is that the value generated from cash flow can help users to evaluate
liquidity. That by looking at the cash flow statement, one can find out whether
the company's liquidity conditions are strong or illiquid. As for some of the
benefits of a cash flow statement, namely a cash flow statement will help
prepare the company's strategy in the future (the future). Can see (monitor) the
ability of the company in various aspects. For example, the company will be
able to see the company's ability to pay employee salaries, distribute dividends
and others.

Electronic copy available at: [Link]

BIBLIOGRAPHY
Hidayah, N. (2022, June 23). mekari. Reclaimed from [Link]:
[Link]

Electronic copy available at: [Link]