Question

What is the difference between the Financial Statements we have been doing vs Statement of Cash Flows? Is one more helpful than the other? What instances would having the Statement of Cash Flows be helpful?

Answer 1

1.DIFFERENCE BETWEEN FINANCIAL STATEMENT AND CASH FLOW STATEMENT

BASIS FOR COMPARISON	FINANCIAL STATEMENT	CASH FLOW STATEMENT
Meaning	The income statement is a part of financial statement which is used to show the revenues, gains, expenses and losses for a particular accounting period.	The cash flow statement is a part of financial statement which is used to reflect the inflows and outflows of cash for a particular accounting period.
Divided into	Two activities	Three activities
Basis	Accrual	Cash
Objective	To know the profitability and owner's equity.	To ascertain the liquidity and solvency of business.
Preparation	On the basis of various records and ledger accounts.	On the basis of income statement and balance sheet.
Depreciation	Considered	Not considered

2.CASH FLOW STATEMENT HELPS FOR.

It provides information about cash flows from operating, investing and financing activities.

It can provide information about an entity’s ability to meet its obligations as they become due.

It will help in assessing likely future financing needs.

It enables the management to know about the causes of changes in cash position of the firm.

It enables the management to check the tendency or overspend. A comparison of Cash Flow Statement of previous year with the budget for that year indicates to what extent cash of the company were applied according to plan.