General Accounting- Essence of Cash Flows Statement

One of the most important bookkeeping or accounting topics is the preparation of financial statements. Cash Flows Statement is an important financial statement which is prepared as per the activities of business and it furnishes details of cash receipt sources and cash major uses for the particular accounting time period. Income Statement and Balance Sheet don’t offer these details. To know more visit www.bls-dubai.com

Essence of Cash Flows Statement

Preparation of financial statement relies on the accrual principle, which implies that income and expenditures are perceived regardless of whether cash was received or paid. Hence business can be productive; however, have no cash because of poor capacity to create adequate cash inflow.

Balance Sheet provides only cash balance at the end of every bookkeeping period and no details how this balance was gathered are provided. That is the reason Cash Flows Statement is essential since it gives points of interest how cash balance changed over the bookkeeping time frame and what was the principal purposes behind such change.

This statement has 3 main components that specify changes in cash into main types which are called activities. These are:

  • Operation Activities – inflows or payment associated with the general functions of the business (i.e. sales of merchandise, provision of administrations)
  • Investing Activities – inflows or payment associated with the investment activities (i.e. sale or purchase of plant assets and alternative non-current assets)
  • Financing Activities – inflows or payment associated with the funding activities (i.e. receipt or reimbursement of loans, payment of dividends)

Insights

From the practical perspective it is essential that business creates adequate cash from its main activities, So Operating Activities part is critical. In the event that the balance in this part is negative, the business for the accounting or bookkeeping time frame was not ready to general adequate cash from its main activities and likely business operations were supported by money received from finance or funding activities.


MANUAL & COMPUTERIZED ACCOUNTING-MAJOR DIFFERENCES

The definition of accounting can be described as a process of identifying, recording, classifying and summarizing financial transactions to produce the financial reports for the purpose of analysis. Accounting is an intrinsic part of any business; the stakeholders are interested in whether they are making a profit or not. Many small scale business houses perform their accounting manually while others consider computerized accounting since the software is very much affordable.The growth of many top audit firms in Dubai has resulted in most of the companies switching to computerised data maintenance. Manual and Computerized accounting systems perform the same processes; the accounting principles and concepts are same with differences being observed in the mechanics of the process. We can write the difference between manual accounting and computerized accounting on the following basis.

Classification-: In a manual accounting system, transactions recorded in the books of original entry are further classified by posting into ledger accounts. This results in transaction data duplicity. In computerized accounting, no such data duplication is made to cause classification of transactions.

Accounting firms in Dubai

Accounting firms in Dubai

Recording-: In a manual accounting system, recording of financial transactions is through books of original entries while the data content of such transactions is stored in a well-designed accounting database in computerized accounting system.

Financial Statements-: In a manual accounting system, we have to make the financial statements manually by careful transferring of trail balance’s figures in income statements and balance sheets. In computerized accounting system, we need not prepare financial statement manually. The financial statements will be produced automatically. It will also change after each voucher entry in the system.

Summarising-: The transactions summarized to produce trail balance in manual accounting system by ascertaining the balances of various accounts. So preparation of ledger accounts becomes a prerequisite for preparing the trail balance. In a computerized accounting system, the generation of ledger accounts is not a necessary step. The originally stored transactions data are processed to churn out the list of balances of various accounts to be finally indicated in the trial balance report.

Speed-: The basic difference between manual and computerized systems is the speed at which the calculations are done. Accounting software processes data and creates reports much faster than manual systems. Calculations are done automatically reducing errors and increasing efficiency.

Backup-: A major difference between manual and computerized systems is the ease of backup in a computerized environment. All transactions can be saved and backed up, in the case of any fire mishap or any other natural disaster. This cannot be done with paper records unless you make copies of all pages.

The advancement in the technology has resulted in most of the companies switching to electronic records of their data.