Cash flows is one of the hardest chapters (topics) in this class. We cover this towards...

Cash flows is one of the hardest chapters (topics) in this class. We cover this towards the end of the class after you obtain some accounting knowledge. If you have read the chapter or attempted some of the homework, you will know its complexity. Your textbook goes into detail on how to prepare as a Statement of Cash Flows, so please consider it to answer the following questions:

What is the main purpose for preparing a cash flow statement?
What insights can you obtain from it?

Expert Solution

The main purpose of the cash flow statement is to provide relevant information about the cash receipts and cash payments of an enterprise during a period in terms of Operating Activities, Investing Activities and Financing Activities. The information helps the users of financial statements to assess the amounts, timing and uncertainty of an enterprise's prospective cash flows.The cash flow statement provides information that enables the stakeholders to evaluate the firm's liquidity. financial flexibility, profitability and risk.

Investors, analysts, creditors, lenders and managers can obtain the following insights from the cash flow statement:

The enterprise's ability to generate positive future net cash flows.
The enterprise's ability to meet its obligations and ability to pay dividends and its needs for external financing
The reasons for differences between net income and the associated cash receipts and payments.
The effect on the enterprise's financial position of both its cash and non-cash investing and financing transactions during the period.

ekkarill92 answered 1 year ago

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