Flow of funds. Methods of reporting

As practice shows, today there are a lot of companies that have some difficulties in drawing up a report reflecting cash flow. These difficulties are often due to differences in the rules for preparing a report on international and Russian standards. International standards, in addition, provide relative freedom to companies on the degree of disclosure of data and the choice of methods and accounting procedures.

When preparing a report reflecting cash flow, an indirect or direct method can be used. For example, for financial and investment activities, only the direct method is applicable. It is considered more informative both from the interpretation of the report and from its application in analyzing the financial state of the organization. When compiling a report using this method, a detailed estimation of cash flows is required because the direct method is very laborious. The application of this method is most effective and expedient in the framework of automation.

Indirect method is used in the formation of consolidated statements. This format is necessary when placing public reporting on the exchange. It should be noted that this method less clearly reflects the flow of funds. In accordance with it, it is quite difficult to "spin" any indicator before financial transactions. And this is often required for budgeting and internal control.

Some companies practice compiling two reports that reflect cash flow. One is made by indirect, and the other by a direct method. In this case, one report is used to check the indicators in the second. As a result, the final items reflecting the cash flow are identical in them. This integrated approach helps to ensure that the management of the enterprise and users of the reporting have all the necessary information for decision-making. However, the use of two methods immediately requires more labor.

It should be noted that regardless of the method used, the report shows the sources of financing of the enterprise, as well as the target direction of their application. Reporting is of great importance in the financial analysis of the company's activities, since it is possible to determine its ability to generate income from basic operations. The document shows a part of the proceeds, which falls on the enterprise in the form of cash. This is important in a situation where accounts receivable are to some extent offset when netting claims or there is a substantial "divorce" of transfers to customers for services rendered from the very period of provision of these services. The latter, for example, is often topical for construction organizations.

The report also allows to determine the effectiveness of management decisions in the financial sector. Adoption of each such decision affects cash flows in the company. So, for example, there can be a reduction or an increase in costs, a change in the direction of finance, and so on.

Adoption of long-term management decisions implies the appropriate planning of cash flows. Information about the direction of finance, but not information on costs and revenues, is the main criterion that allows implementing certain investment projects. When calculating these, consideration is given to the analysis of the future monetary movement and their discounting. This information is contained in the report on the directions of finance.

In addition, information on cash flows analysts often apply in determining the free movement of finance, which is one of the most important indicators used in the formation of the company's value.