Question

The cash flow statement provides additional information beyond the income statement and balance sheet. Explain why the cash flow statement provides useful information beyond the other statements.

Answer 1

From income statement and balance sheet, one cannot determine the amount of cash in-flowed or out-flowed during the year as these statements considers revenues and expenses on accrual basis. To know the amount of cash spent or received, one has to refer to cash flow statement. This statement shows us the net increase or decrease in cash in all the three activities which a business undergoes during a year, i.e., operating activities, investing activities and financial activities.