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Unformatted text preview: Using the Statement of Cash Flows Investors, creditors, and others want to know what is happening to a company's most liquid resourceits cash. In fact, people often say that cash is king because if a company cannot generate cash, it will not survive. Neither the income statement nor the balance sheet is prepared using a cash basis of accounting (explained in Chapter 4 ). Consequently, they do not answer many important questions about a company's cash. Instead, the statement of cash flows provides financial information about the sources and uses of a company's cash. To aid in the analysis of cash, the statement of cash flows reports the cash effects of (1) a company's operating activities , (2) its investing activities , and (3) its financing activities . Sources of cash matter. For example, you would feel much better about a company's health if you knew that most of its cash was generated by operating its business rather than by borrowing cash from lenders. Illustrates 2-17...
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This document was uploaded on 11/03/2011 for the course ACCOUNTING ac 201 at Montgomery.
- Spring '11