3.You are the accountant for a small manufacturing firm. Your company is privately held, so there...

3.You are the accountant for a small manufacturing firm. Your company is privately held, so there is no current requirement to issue financial statements using GAAP. You were hired four years ago, and at that time you instituted a cash budgeting system. Presently, you prepare anincome statement, statement of retained earnings, balance sheet and departmental budgets. Jake Griffith, the company's president, has asked whether a statement of cash flows would also be useful. Required: Prepare a short memorandum to the president indicating whether you believe such an addition to the financial statements to be useful. Include in your memo the benefits that might be expected from a statement of cash flows and whether those are different from the benefits of income statement.

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Expert Solution

TO: Jake Griffith

FROM: Christine Joseph

RE: Statement of Cash Flows vs. Cash Sources and Needs

You asked whether a Statement of Cash Flows would be useful, in addition to the Cash Sources and Needs statement. In my opinion, the statement of cash flows would be extremely useful. It gives different information than the Cash Sources and needs do. A Statement of Cash Flows would provide historical information about where we got the funds for operating, financing, and investing activities, as well as how we used the funds. It is a summary of our performance. The Cash Sources and Needs statement, on the other hand, is a prediction of the cash we will need and the source from which it will be obtained. One is our plan, the other is our result.

Please let me know if you'd like more details about the Statement of Cash Flows.

(Signed)

ekkarill92 answered 1 year ago

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