Describe the statement of cash flows and why it is important

Describe the statement of cash flows and why it is important to financial decision making.

Solution

Statement of cash flow explains the flow of cash in a financial year.It compares the opening and closing balance of cash and cash equivalent and presents the cash flow into three parts.they are cash flow form operating activity,financing activity and investing activity.

It is important to have a cash flow statement as many times the Profit and loss statement contains non cash item like depreciation etc. which might not give the actual amount of cash generated in the companry.Also the balance sheet contains account balances of past years also.in cash flow we can know the cash generated in the current year.