Chapter 12, Problem 1Q

(a)

To determine

Define the statement of cash flows.

Explanation of Solution

Financial statement

A financial statement is the complete record of financial transactions that take place in a company at a particular point of time. It provides important financial information like assets, liabilities, revenues and expenses of the company to its internal and external users. It helps them to know the exact financial position of the company. There are four basic financial statements; they are:

• Balance Sheet
• Income statement
• Statement of retained earnings
• Statement of cash flows

Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

(b)

To determine

Ascertain whether cash flow statement is an optional financial statement.

Answer to Problem 1Q

No, Cash flow statement is not an optional financial statement.

Explanation of Solution

As per Generally Accepted Accounting Principles (GAAP) it is mandatory that a company must prepare statement of cash flows, when preparing financial statement for a company. It is the one of the basic financial statement which is required to be prepared by the company.