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Discussing the Purpose of Statement of Cash Flows

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Prepare a response in which you answer: What is the purpose of the statement of cash flows? What information does it provide?

Be sure to explain why statements of cash flows are important when assessing the financial strength of an organization.

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Solution Summary

This solution is comprised of a 730 word response which addresses the concept of statement of cash flows and provides a very comprehensive description regarding their purpose and the type of information they provide. Several references are also provided.

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The cash flow statement records the cash and cash equivalent coming into and moving out the company. The purpose of the cash flow statement is to give the entry of cash balance that is given in the balance sheet. The statement of cash flows is the bridge between the details of the profit and loss account and the balance sheet. The cash flow statement helps fill the gaps in information between the financial statements of a company.

The purpose of the cash flows from financing activities gives the reader the cash flows from investing, borrowing, cash withdrawals by owners and changes in stock levels. In detail the cash in financing activities provides information about the proceeds from issuing shares, from issuing short-term or long term debt, from capital leases, repayment of debt principal, payments made for repurchase of shares and payments of dividends.

The purpose of cash flows from the perspective of investing activities is to provide you with information about cash from changes in assets, sales or purchase of bonds. It gives information about the investing activities that are used with operating activities. The cash that goes into the investing activity ...

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  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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