Chapter 23, Problem 1TF

True/False

The purpose of the statement of cash flows is to provide information about total revenue and expenses.

To determine

Identify whether the given statement is true or false.

Answer to Problem 1TF

The purpose of the statement of cash flows is to provide information about total revenues and expenses is false.

Explanation of Solution

Statement of cash flows: 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.

Purpose of the statement of cash flows:

• The primary purpose of the statement of cash flows is to provide information about the cash inflows and cash outflows of an organization.
• To determine the ability of the business to pay dividend and settle debts.
• Statement of cash flows distinguishes among the operating activities, investing activities and financing activities.
• Cash flows from operating activity provide information which is helpful in estimating future profitability, liquidity, and long term solvency.

From the above explanation, it is clear that the primary purpose of the statement of cash flows is to provide information about the cash flows (cash inflows and cash outflows) of the business.

Hence, the given statement is wrong.