Question

What are the purposes of the statement of cash flows and how does it help users ?

Answer 1

Purposes of the statement of cash flows & how does it help users

• The main purpose for a cash flow statement is to provide information about changes in cash balance through various cash receipts & cash payments in a given period from operating , investing & financing activities.
• Statement of cash flow helps management & users of financial statement to anticipate the company's potential to generate positive cash flow in future.
• Cash flow helps users to understand the causes for difference between cash flow from operating activities & net income for the period. It also help to assess the reliability of income statement.
• With the help of investing & financing activities users of financial statement can better understand the balance sheet ie why assets and liabilities increases or decreases.
• Cash flow statement helps management to understand & analysis the overall cash management ie where the money goes or any cash leakage is there or areas where excess cash can be generated.
• As per US. GAAP , cash flow statement is a part of Financial statements should be presented along with balance sheet & income statement.
• Cash flow statement provide the information about cash available for investment opportunities.