History Of Cash Flow Statement

ash flow statement is the financial statement that provides the movement of money that comes in and out of your business. It is the integral part of the business and a great tool for managers and investors that show how changes in the balance sheet and income affect cash. The idea is to provide the basis for an overall picture of how cash flow generated by the company is doing with handling the outstanding expenses incurred during operation. Here, in this article we will let you know a brief history of cash flow statement and how it has been developed with the passage of time.

The history of statement of cash flow can be traced back to the year 1863. In this year Dowlais Iron Company had recovered from a business collapse, but had no money to invest for a new Blast furnace, despite having made a profit. To give an explanation why they had no cash to invest, the manager of that company made a new financial statement which was known as comparison balance sheet. This statement shows that the company was holding too much inventory. In fact this financial statement was the genesis or the beginning of Cash Flow Statement that is used today.

The year 1971, marked a turning point in the history of cash flow statement. In this year in United States, the financial Accounting Standards Board (FASB) defined rules that made it mandatory under Generally Accepted Accounting Principles US GAAP, to sources and uses of funds. But the cash flow statement history shows that the definition of funds during that time was not clear. At that time "Net working capital" might be referred to as cash or it can also denote the difference between present assets and present liabilities. The history of cash flow statement further shows that from the late 1970 to the mid-1980s, the FASB discussed the usefulness of predicting future cash flows.

 In the history of cash flow statement, the FASB adopted the Statement of Financial Accounting Standard (SFAS) 95 entitled "Statement of Cash Flows’ in the year 1987. This standard statement mandated that firms should provide cash flow statements. The International Accounting Standards Board issued International Accounting Standard 7 (IAS 7) in the year 1992, and cash flow statements became effective in 1994, mandating that firms provide cash flow statements.