Question

What information does the cash flow statement of a company show that is to readily apparent from the income statement and balance sheet?

Answer 1

Cash Flow Statement: It is a financial statement that shows how changes in Balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities.The income statement and the statement of cash flows connect the balance sheets from the beginning of the year to the end. During the course of that time, total reported net assets either increase or decrease as does the entity’s cash balance. The individual causes of those changes are explained by means of the income statement and the statement of cash flows

Cash flows are not readily apparent when just reviewing the income statement, especially when that document is created under the accrual basis of accounting. Accrual accounting requires that certain non-cash revenue and expense items be included in the income statement, possibly in substantial amounts. A large disparity between the amount of reported income and the net change in cash flows could indicate that there is fraud in the preparation of a company's financial statements.