The primary purpose of the statement of cash flows is to

A) provide information about the investing and financing activities during a period.
B) prove that revenues exceed expenses if there is a net income.
C) provide information about the cash receipts and cash payments during a period.
D) facilitate banking relationships.

[bg_collapse_level2 view=”button-orange” color=”#4a4949″ icon=”arrow” expand_text=”Show Answer” collapse_text=”Hide Answer” ]

The Correct Answer for the given question is option C) provide information about the cash receipts and cash payments during a period.

[/bg_collapse_level2]

Purpose of Cash Flow Statement

Cash flow statement provides the readers of a financial statement with a picture of how much cash came in and went out of the company. The accrual basis of accounting requires that the income statement show the revenues earned (not the actual amounts received) and the expenses incurred or matched to the accounting period (not the actual amounts spent). A company’s income statement will not include money invested by owners or received from lenders. A loan repayment or a building or equipment purchase will also be repaid.

The cash flow statement shows the amount of cash received and spent for three different types of activities (operating, investing, and financing), as well as the amount of interest paid, tax payments, and non-cash financing or investing activities. A cash flow statement is prepared for various purposes, including demonstrating the flow of cash between the company’s inflows and outflows, the effect of management’s strategic decisions, and to project the liquidity structure of an organization to its readers.

Some of the major purpose of Cash Flow Statement Include:

To Measure Inflows and Outflows of Cash.
To Generate Inflows of Cash.
To Classify activities into operating activities, investing activities and financial activities.
To Forecast and Evaluate Future Cash Flows.
To Assess liquidity and solvency position of a firm.
To Supply necessary information to the users.
To help management to ascertain cash planning.

Similarly, You may Also Like:

Author
Recent Posts

Smirti

(Founder of Management Notes)
MBA,BBA.

I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.

I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,

Management Notes

The primary purpose of the statement of cash flows is to