Write any two advantages of preparing cashflow statement
Question
Write any two advantages of preparing cashflow statement
Solution
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Provides a Clear Picture of Cash Movements: The cash flow statement provides a detailed report of the cash inflows and outflows within a company during a specific period. This helps the management to understand where the cash is coming from (cash inflows) and where it is spent (cash outflows). This information is crucial for managing the cash flow and making important business decisions.
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Helps in Planning and Forecasting: The cash flow statement can be used to predict future cash flow patterns. This is particularly useful for budgeting and planning purposes. By understanding the past cash flow patterns, a company can forecast the future cash needs and plan accordingly to ensure that there is always enough cash to meet the operational needs and investment opportunities.
Similar Questions
There are 2 methods of preparing a Statement of cashflows, the direct and indirect methods. These 2 methods differ for which section/s (select all that apply):Group of answer choicesNone of the activity sections differOperating activities sectionInvesting activities sectionFinancing activities sectionSignificant non-cash activities section
Preparation of the statement of cash flows does not involve:Multiple ChoiceComputing the profit compared to the net increase or decrease in cash.Computing and reporting net cash provided or used by investing activities.Computing and reporting net cash provided or used by financing activities.Computing the net increase or decrease in cash.Computing and reporting net cash provided or used by operations.
The statement of cash flows, provides users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilize those cash flowsGroup of answer choicesTrueFalse
A statement of cash flows is needed because:Group of answer choicesaccrual-based financial statements are historic.it enables users to understand more clearly the entity's sources and uses of cash.accrual-based financial statements are not accurate.none of the options are true.
The Statement of cash flows helps management, investors, creditors and other interested parties evaluate the following about the entity (choose all that apply):Group of answer choicesCash investing and financing transactions for the periodExplains the difference between profit and net cash provided (used) by operating activitiesAbility to pay share dividends and meet obligationsAbility to generate future cash flows
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