Question

4. flower for the 50 37. What is the purpose of the statement of cash flows? List the three major categories of cash flows and give an example of a cash transaction for each category.

Answer 1

Purpose of cash flow statement is to show where and entities cash is being generated (cash inflows), in where it cash is being spent (cash outflows), over a specific period of time (usually quarterly and annually). it is important for analysing the liquidity and long term solvency of the company.

The cash flow statement uses cash basis accounting instead of accrual basis accounting which is used for the balance sheet and income statement by most companies. this is important because a company may accrue accounting revenues but may not actually receive the cash this could produce profits and taxes payable but not provide the resources to stay solvent.

List of three major categories of cash flow

1. Financing activity

Example :- cash received for issue of shares.

2. Investing activity

Example :- purchase of plant and machinery for cash

3. Operating activity

Example :- purchase of raw material for production for cash

Bank reconciliation statement :-

Particulars	Amount ($)	Amount ($)
balance as per bank statement		6790
Add :-
Customer check not cleared	400
Bank charges	60	460
		7250
Less :-
Automatic withdrawal for rent	1500
Interest credited by bank	50
Madison's top executive paid	4200	(5750)
Balance as per cash book		1500

These are all the information required to solve the given question.

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