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.
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:
Similarly, You may Also Like:
- The order of presentation of activities on the statement of cash flows is
- Meaning of Cash Flow Statement – Financial Statement Analysis | Accounting
- Uses of Cash Flow Statement – Financial Statement Analysis | Accounting
- Difference between Cash Flow Statement and Fund Flow Statement | Managerial Accounting