Question

Identify some accounting issues associated with the cash flow statement and identify some disclosure requirements associated with the cash flow statement.

Answer 1

The issues associated with cash flow statement are-

1. Even if a company is growing and its accounts receivables are increasing, it does not affect the inflow of cash at the time of preparation of cash flow.

2. One who don't have the knowledge about items included in a particular activity may affect all the other activities causing inaccurate balance.

3. Cash flow statement discloses about the inflow and outflow of cash, hence it could not be used as future budgeting tool. That's why a separate statement of cash budget is required to be prepared.

4. Loan taken by the company is shown under the financing activity as inflow, but it does not shows the overburden of debt on the company.

5. A cash flow statement does not represent the idleness of funds available in the company.

The disclosures required in cash flow statement are-

1. A note is required to be prepared showing the calculation of cash and cash equivalent.

2. A separate disclosure regarding the increase in operating capacity of the company, enabling the investors to be satisfied that the company has invested properly in operating activities.

3. Relevant disclosure regarding the liquidity and financial position of the company.

4. Disclosure regarding effect of change in policies, on cash and cash equivalent.