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Hospitality Industry Managerial Accounting 8th Edition

Hospitality Industry Managerial Accounting (8th Edition)

Book Edition8th Edition
Author(s)Schmidgall
ISBN9780866124973
PublisherEduc. Inst. Of The American Hotel & Motel Assoc.
SubjectAccounting

Chapter 4, End of Chapter, Review Questions, Exercise 1

Page 206

Here is a tip:

Cash flow statement classifies cash transactions related to operating,investing and financing activities.

Explanation

 Cash flow serves the following purposes:-

  • Cash flow statement depicts important information like liquidity position which helps investors to decide whether the company is using their money in a profitable way or not.
  • It shows the potential of a company to generate cash in the future.
  • It helps to differentiate between net income of the year and cash receipts as income statements also include transactions on accrual basis whereas cash flow statement shows only cash transactions.

Verified Answer

Main purposes of statement of cash flow are:-

  • To evaluate whether the company is capable to generate cash inflow more than the outflows.
  • Evaluate the liquidity position to determine that  the firm has the ability to pay its dues on time.
  • It helps to give information related to sources of cash and uses of cash balance in various activities.
  • It records cash transactions involved in operating, financing and investing activities.
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