Question

20. Why did my medical practice never have to run a statement of cash flows?

I'm not sure how to answer this question, thank you for your help.

Answer 1

Medical Practitioners generally follow Cash System of Accounting. Under this system, Revenue and Expenses are recorded when actual Cash Flow takes place i.e., either cash inflow or outflow takes place unlike Accrual System of Accounting where Revenues and Expenses are recorded as and when they are incurred irrespective of actual Cash Flow.

Due to Cash System of Accounting, all transaction majorly show Cash Inflow or Outflow. Hence the requirement of Cash Flow Statement is ousted in such system as all transactions themselves show the Cash Flow position. A separate Cash Flow Statement does not makes sense in such condition.

It is in Accrual System of Accounting that such requirement is of importance where Cash Flow from different transactions are not clear from the books.