What is the purpose of the statement of cash flows?
What information does it provide?
Explain why statements of cash flows are important when assessing the financial strength of an organization.© BrainMass Inc. brainmass.com February 24, 2021, 7:19 pm ad1c9bdddf
Cash Flow Statements
What is the Purpose of the Statement of Cash Flows
Harold Averkamp (CPA) posted on the Accounting Coach site "The purpose of cash flow statement or statement of cash flows is to provide information about a company's gross receipts and gross payments for a specified period of time (Harold Averkamp (CPA), 2011)." These receipts will include items from operating, investing, and financing expenditures. If the company has spent money in these three areas, then those expenditures will show on the cash flow statement.
What Information Does the Statement of Cash Flows Provide
On a statement of cash flow you will see three categories: core operations, investing, and financing. Each is defined as follows:
The changes that come under operations would be made in cash, depreciation, inventory, accounts receivable, and accounts payable. Cash flow is determined by making adjustments to net income. Those come from differences in revenue, credit, and expense transactions. Assets and liabilities are in the balance sheet and non-cash items of net income are in the income statement. Taxes, salaries, and prepaid insurance are expenses that if paid off, "the difference in the value owed from one year to the next has to be subtracted from net income (Heakal, 2011)."
The items involved in the investing category are assets, ...
Purpose of the statement of cash flows is addressed along with what information it provides. It addresses why the statements of cash flows are important when assessing the financial strength of an organization in approximately 800 words. There are 3 references.