Question

1.) The income statement and the statement of cash flows often paint the same picture of the company. True or False

2.) Investing and financing activities for the statement of cash flows may be prepared using the direct method Horizontal analysis compares a financial statement line item in the current year with the same line item in the prior year. True or False

3.) The statement of cash flows is an optional statement. True or False

Answer 1

1) Answer : False

Explanation : For the companies financial statement, both ( cash flow statement and income statement) are the very integral parts. cash flow statement is a statement that helps a Company to measures its sources of cash and uses of cash over a given period of time,therefore non cash items are not considered at all in cash flow statement.(eg , depreciation, outstanding expenses, accrued income))   While as The income statement of company's financial performance, such as revenues earned , expenses incurred, profits or losses over a specific time period , hence it takes into account non cash items such as , (depreciation, outstanding expenses, accrued income). An income statement is generally used by the company to determine the performance from its operations e.g how much revenue it earned and expenses it incurred , and finally the profit or loss from the revenue and expenses, while as Cash flow statement only shows the flow of cash ( what goes in , what goes out; & the net cash in hand).  hence The income statement and the statement of cash flows do not often paint the same picture of the company.

2) True

Explanation : The cash flow arising  financing and investing activities’ sections of the cash flow statement  will be identical / same under both the method of preparation of cash flow statement , whether it is  indirect and direct method of preparation of Cash flow statement.

Horizontal analysis is a type of analysis of financial statements which involves the assessing  of the relative changes in different items off financial statements over specific period of time. It also shows the behavioral aspects of revenues, expenses, and other line items of financial statements of the company over the given period of  time. Comparison of historical financial information is made over given reporting periods, to determine the amount of changes with respect to the information given.

3) False :

Explanation :The statement of cash flows is not an optional statement, it is not a mandatory statement and one of the basic financial statements of the company which provides the aggregation of the information of all cash inflows and outflows during a given period of time.  cash flow statement is a very  integral part of financial statements, cash flow statement is a statement that helps a Company to measure its sources of cash and uses of cash over a given period of time,