Statement of Cash Flows

AuthorVern Krishna
Chapter 12: Statement of Cash Flows
e statement of cash ows provides details of an entity’s cash
management, which is an important aspect of a business. In accrual
accounting, income does not equal cash. e statement of cash ows
is a supplementary source of information to the other nancial state-
ments and provides a dierent perspective.
A successful business that reports growing net income may, never-
theless, run into nancial diculties if it cannot collect its revenues or
there is undue delay between the time of its sales and the time that it
collects its cash. Similarly, businesses must be sensitive to their ability
to pay their expenses as they become due. Even successful businesses
can have liquidity problems in paying their accounts because of cash
By comparing an enterprise’s current balance sheet with a previous
balance sheet, we can obtain useful information about its cash ows.
e statement of cash ows essentially reconciles opening and closing
cash (and cash equivalents) for the scal period covered in the Bal-
ance Sheet. However, unlike the income statement, which uses accrual
accounting to record revenues and expenses, a cash ow statement

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