Chapter 12, Problem 1Q

(a)

To determine

Financial statement

Financial statements provide details about a company's annual earnings, cash available at the end of the year, assets and liabilities, stockholders' equity, and retained earnings at the end of each accounting year. It provides important financial information like assets, liabilities, revenues and expenses of the company to its internal and external users. It helps them to know the exact financial position of the company. Following are the four basic financial statements of a company.

• Balance Sheet
• Income statement
• Statement of retained earnings
• Statement of cash flows

To describe: The statement of cash flows.

Explanation of Solution

Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

(b)

To determine

To explain: Whether cash flow statement is an optional financial statement.

Answer to Problem 1Q

Disagree, Cash flow statement is not an optional financial statement. Cash flow is one among the four basic financial statements of the company.

Explanation of Solution

As per Generally Accepted Accounting Principles (GAAP) it is mandatory that a company must prepare statement of cash flows, when preparing financial statement for a company. Hence, the cash flow statement is not an optional financial statement.