Question

what are some of the reasons why a statement of cash flow’s may be important to users of financial statements?

Answer 1

Ans : (1) Cash flow statement uses cash basis of accounting instead of accrual basis which is used for balance and income statement by most companies.

(2) cash flow statement has detailed view of cash flow from operations , investments and financing. where operating activity explains cash generated through operations in a year, investment helps to identify the cash made in assets that are used for operations and cash from financing helps how cash is generated ( either equity or debt)

(3) Investors , creditors do investment or supply not only based on accounting profit that is showed in profit and loss account but also uses the cash generation of company from cash flow statement therefore cash flow statement is playing key role as well .