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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Which of the following sentences regarding the statement of cash flows is false?

  1. The statement of cash flows describes the company’s cash receipts and cash payments for a period of time.
  2. The statement of cash flows reconciles the beginning and ending cash balances shown on the balance sheet.
  3. The statement of cash flows reports cash flows in three categories: cash flows from business activities, cash flows from investing activities, and cash flows from financing activities.
  4. The statement of cash flows may be used by creditors to asses the creditworthiness of a company.

To determine

Concept Introduction:

Cash Flow statement:

The Cash flow statement shows the movement of cash during a particular period. The Cash flows are categorized into three categories as follows:

  • Cash flows from operating activities.
  • Cash Flows from investing activities.
  • Cash flows from financing activities.

To choose:

The False statement regarding the Statements of Cash flows.

Explanation

Explanation for correct answer: The Statement of Cash flows cannot be used by creditors to assess the credibility of the company because credibility can be analysed by using the balance sheet. Hence this is the right answer.

Explanation for incorrect answers:

a. Cash flow statement shows the movement of cash during a particular period; hence it is not the right answer.

b...

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