Question

What is the usefulness of the statement of cash flow? Do the balance sheet and income statement provide sufficient cash flow information?

Answer 1

Cash flow statement shows cash inflows and outflows due to various types of activitties e.g., operating actitivities, investing activities and financial activities. It does not include non cash items so cash flow statement is very useful to check solvency of any organization. if ample amount of cash is not available in the business then chances of bankrupcy will increase substantially.

Balance sheet usually tells about financial position of any organization and income statement includes cash and non-cash items as it is prepared on accrual basis which is useful to know about amount of profit earned or loss incurred within a financial year. so. cash flow statement is much better in knowing of cash position rather than balance sheet and income statement.