Chapter 13, Problem 1STQ

To determine

The statement of cash flow designed to assist user in assessing each of the following except.

Answer to Problem 1STQ

 b. The company profitability.

Explanation of Solution

Statement of cash flows: Statement of cash flows reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Justification for incorrect option:

The statement of cash flows helps the users in accessing the ability of the company by reviewing the operating activities.

The statement of cash flow includes the cash receipts and cash payment during the period.

Indirect method, explains the reason for why net cash flows from operating activities differ from net income.

Option a, c, and d are explaining the statement of cash flows to the users. Therefore, all the options are considered as incorrect option.

Justification for correct option:

Statement of cash flows reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period. The profitability of the company is determined only from the income statement not from the statement of cash flows. Hence, it is a correct option.

Conclusion

Therefore, the correct option is b.