Concept explainers
The purposes of the statement of cash flows are to
a. evaluate management decisions.
b. determine ability to pay debts and dividends.
c. predict future cash flows.
d. All of the above
Statement of cash flows
Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.
To Determine: The purpose of the statement of cash flows.
Answer to Problem 1QC
Explanation of Solution
Explanation for correct answers:
Purpose of statement of cash flows are given below:
- To predict future cash flows of the business,
- To determine the ability of the business to pay dividend and settle debts, finally
- To evaluate the management decision.
Hence, (d) is the correct option because all the stated purposes of statement of cash flows.
Explanation for incorrect answers:
- Option (a) is incorrect because evaluate management decision alone is not the purpose of statement of cash flows. Purpose of statement of cash flows refers to all the activities mentioned in options (a), (b), and (c).
- Option (b) is incorrect because determine ability to pay debt and dividend alone is not the purpose of statement of cash flows. Purpose of statement of cash flows refers to all the activities mentioned in options (a), (b), and (c).
- Option (c) is incorrect because predict future cash flows alone is not the purpose of statement of cash flows. Purpose of statement of cash flows refers to all the activities mentioned in options (a), (b), and (c).
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Chapter 14 Solutions
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