The Advantages of Cash Flow Accounting
Some of the advantages of cash flow accounting are as follows,
- Survival in business depends on the ability to generate cash. Cash flow accounting directs attention towards this critical issue.
- Cash flow is more comprehensive than “profit” which is dependent on accounting conventions and concepts.
- Creditors (long term and short term) are more interested in an entity’s ability to repay them than in its profitability. Whereas “profits” might indicate that cash is likely to be available, cash flow accounting is more direct with its message.
- Cash flow reporting provides a better means of comparing the results of different companies than traditional profit reporting.