If the income statement of a financial plan shows that the business will be profitable, why is there a need for a statement of cash flows?

There is a need for a statement of cash flows,even if income statement shows profit,due to the…

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why is there a need for a statement of cash flows?

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter3: Income Flows Versus Cash Flows: Understanding The Statement Of Cash Flow

Section: Chapter Questions

Problem 1QE: Need for a Statement of Cash Flows. The accrual basis of accounting creates the need for a statement...

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Question

If the income statement of a financial plan shows that the business will be profitable, why is there a need for a statement of cash flows?

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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