Cash Flow statement: The statement which summarizes the net amount of cash disbursed and received in a particular activity is called cash flow statement.
Determine the purpose of the cash flow statement.
Answer to Problem 1Q
Solution: The cash flow statement is prepared to study the net cash position of the company. It forms an integral part of the annual financial report.
Explanation of Solution
Cash flow statement is a report that shows the net
It thus shows how the company manages its cash liquidity.
Broad purposed can be enumerated as below −
- Used to calculate the
accounts receivables turnover − that is how fast the cash is received from the debtors. - Used to calculate the accounts payables turnover − that is how fast is the cash paid to the vendors to reduce the net outstanding.
- Used to calculate the net change in the opening cash and the closing cash balance during the year.
- Used to calculate how much of the inventory is converted into real cash as compared to previous year’s cash flow statement.
The purposes of the cash flow statement are thus briefly summarized.
Want to see more full solutions like this?
Chapter 13 Solutions
MANAGERIAL ACCOUNTING
- Explain the purpose of the statement of cash flows and why this statement is needed.arrow_forwardWhat categories of activities are reported on the statement of cash flows? Does it matter in what order these sections are presented?arrow_forwardWhen preparing the operating section of the statement of cash flows, using the indirect method, how must gains and losses be handled? Why?arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning