![]() ![]() The income statement shows revenues and expenses using the accrual basis of accounting, but it does not indicate how much cash was received for revenues or paid for expenses. Question: Why did the Financial Accounting Standards Board (FASB) create the statement of cash flows in 1987?Īnswer: The statement of cash flows was created due to a lack of cash flow information on the income statement, balance sheet, and statement of owners’ equity. Although the formal statement of cash flows is not quite this simple, the concept is the same. The goal is to start with the beginning of the year cash balance, add all cash receipts for the year, subtract all cash payments for the year, and find the resulting end-of-year cash balance. For example, all cash receipts from paychecks are added together and shown as one line item, all cash payments for rent are added together and shown as one line item, all cash payments for food are added together and shown as one line item, and so on. Rather than showing every single transaction in a formal report, the statement of cash flows summarizes these transactions. Simply put, the statement of cash flows indicates where cash came from and where cash went for a period of time.Īssume you keep track of your individual cash transactions for an entire year in a check register (e.g., checks written and paycheck deposits) and suppose you have hundreds of transactions for the year. Cash receipts and cash payments are summarized and categorized as operating, investing, or financing activities. provides cash receipt and cash payment information and reconciles the change in cash for a period of time. What information is provided in the statement of cash flows?Īnswer: The statement of cash flows A financial statement that provides cash receipt and cash payment information and explains the change in cash for a period of time. This chapter will focus on preparing the statement of cash flows and on using the resulting cash flow information for analytical purposes. Financial accounting courses cover the first three statements in detail and often provide an overview of the statement of cash flows. Question: Most organizations prepare four financial statements for external reporting purposes: income statement, balance sheet, statement of owners’ equity, and statement of cash flows. Define the purpose of the statement of cash flows. ![]()
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