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Companies are required to record accruals as part of their period end closing process. Depending on...

Companies are required to record accruals as part of their period end closing process. Depending on the company, they can record accruals monthly, quarterly or just once a year so that we can complete the matching principle of matching revenues to expenses in the correct period.

Why don't we do the same for the cash flow statement? Would it help companies to understand their 'true' position?

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Answer #1

Cash flow statement reflects how cash flows in the business from significantly three activities i.e operating, financing and investing activities. Cash flow statements uses accrual financial statement to get an idea of actual cash expense. Hence accrual basis can't be followed for cash flow statements since purpose of reflecting actual cash flow will dilute otherwise.

Companies get true position of cash flow from activities like operating, investing and financing through cash flow statement by following cash recording method.

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