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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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What information does the statement of cash flows help users assess?

To determine

Explain the information that helps the users to assess from the cash flow statement.

Explanation

Statement of cash flows: Cash flow statement 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.

The following are the information that helps the users to assess from the cash flow statement:

  • Statement of cash flows helps the user to know the company’s ability towards generation of positive future net cash flows.
  • Statement of cash flows is used to find whether companies are in need of any external financing for their operations.
  • Statement of cash flows helps the user to know the company’s ability towards payment of dividends and fulfill the obligations.
  • Statement of cash flows helps in examining the reasons for the differences that occur between company’s net income and related cash receipts and payments.
  • Statement of cash flows is used in assessing the cash and non-cash aspects of the financing and investing activities that occur in the accounting period.

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