Benefits of cash flow information
Cash flow information helps users assess how a business generates and uses cash, its ability to meet payments and its need for external finance. It also explains why profit differs from the change in cash, including working capital movements, non-cash expenses and investing or financing flows. It complements accrual-based financial statements rather than replacing them.
Worked example
A profitable retailer may have falling cash because it bought extra inventory on cash terms and customers have not yet settled credit sales.
Common mistake
A large positive cash inflow can come from borrowing or selling assets; it does not by itself demonstrate profitable, sustainable trading.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: Cash flow accounting advantages, Cash flow information benefits