Cash flow statement is an important tool of management information and liquidity planning. It is prepared to explain the movement on cash. The statement is useful in planning use of cash in a short period of time. It helps the management to plan acquisition of fixed asset and other gainful uses of cash. The information in the cash flow statement is highly useful for internal as well as external users.
To indicate: The purpose of cash flow
Answer to Problem 1QC
Solution: a. evaluates management decisions
Explanation of Solution
Option a: The cash flow statement shows summarized details of the cash transactions in a period. It helps the management to take decisions regarding investing or utilizing cash and its equivalents in the firm. It also helps the management to figure out the reasons for inflow or outflow of cash and if needed, necessary measures can be taken to control or increase the same.
Option b: The ability to pay debts and dividends is determined using the financial statement of the firm. The cash flow statement shows only inflow and outflow of cash along with its reason. Hence, it cannot be considered as the purpose of preparing statement of cashflow.
Option c: Management can predict future cash flows on the basis of current and historic cash flow trends. Management uses
Option d: B and c part are incorrect. Hence, d is also incorrect.
The purpose of the cash flow statement is to help in evaluating managerial decisions.
Want to see more full solutions like this?
Chapter 16 Solutions
Horngren's Accounting (11th Edition)
- The following information concerns production in the Baking Department for August. All direct materials are placed in process at the beginning of production. Date Item Debit Credit BalanceDebit BalanceCredit August 1 Bal., 6,300 units, 4/5 completed 16,884 31 Direct materials, 113,400 units 226,800 243,684 31 Direct labor 64,390 308,074 31 Factory overhead 36,212 344,286 31 Goods finished, 114,900 units 332,958 11,328 31 Bal., ? units, 2/5 completed 11,328 a. Based on the above data, determine each cost listed below. Round "cost per equivalent unit" answers to the nearest cent. Line Item Description Amount 1. Direct materials cost per equivalent unit $fill in the blank 1 2. Conversion cost per equivalent unit $fill in the blank 2 3. Cost of the beginning work in process completed during August $fill in the blank 3 4. Cost of units started and completed during August $fill in the blank 4 5. Cost of the ending work in…arrow_forwardWahwaht is the stock price? General accounting questionarrow_forwardNonearrow_forward
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education