Chapter 13, Problem 1Q

(a) What is a statement of cash flows?

(b) Mark Paxson maintains that the statement of cash flows is an optional financial statement. Do you agree? Explain.

To determine

Financial Statements

A financial statement is a complete record of the financial transactions that takes 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.

To determine: The meaning of a statement of cash flows.

Explanation of Solution

Cash Flow Statement is a fundamental financial statement that renders valuable information regarding the cash inflows or the cash receipts of a business and the cash outflows or cash payments for a specific period of time.

The cash flow statement also provides information regarding the net cash change that occurred during a period, classifying the activities into three categories those are cash from operating activities, investing, and financing activities.

Conclusion

Hence, the statement of cash flows is explained as above.

To determine

Whether M.P’s belief that the statement of cash flows is an optional financial statement is correct or not.

Explanation of Solution

Disagree. The preparation of cash flows is not an optional in financial statement. It is agreeable as the preparation of cash flow statement for corporate or company organizations, it is mandatory. The cash flow statement is the fourth basic financial statement. Hence, the cash flow is required in financial statement.

Conclusion

Hence, M.P’s belief that the statement of cash flows is an optional financial statement is not agreeable.