Chapter 13 discussion - Purpose of a cash flow statement:...

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Purpose of a cash flow statement: The cash flow statement was formerly known as the statement of changes in financial position or flow of funds statement. The cash flow statement reflects a firm's liquidity or solvency. The balance sheet is a snapshot of a firm's financial possessions and commitments at a single point in time, and the income statement summarizes a firm's financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues. The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These noncash transactions include depreciation or write-offs on bad debts to name a few. The cash flow statement is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activities. Noncash activities are usually reported in footnotes.
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Chapter 13 discussion - Purpose of a cash flow statement:...

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