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Concept explainers
True/False
The purpose of the statement of
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Identify whether the given statement is true or false.
Answer to Problem 1TF
The purpose of the statement of cash flows is to provide information about total revenues and expenses is false.
Explanation of Solution
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.
Purpose of the statement of cash flows:
- The primary purpose of the statement of cash flows is to provide information about the cash inflows and cash outflows of an organization.
- To determine the ability of the business to pay dividend and settle debts.
- Statement of cash flows distinguishes among the operating activities, investing activities and financing activities.
- Cash flows from operating activity provide information which is helpful in estimating future profitability, liquidity, and long term solvency.
From the above explanation, it is clear that the primary purpose of the statement of cash flows is to provide information about the cash flows (cash inflows and cash outflows) of the business.
Hence, the given statement is wrong.
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Chapter 23 Solutions
College Accounting, Chapters 1-27
- Explain the purpose of the statement of cash flows and why this statement is needed.arrow_forwardWhat categories of activities are reported on the statement of cash flows? Does it matter in what order these sections are presented?arrow_forwardGive an example and explanation for each of the following differences between when revenues are recognized and cash flows are received: recognition simultaneous with receipt; recognition prior to receipt; and recognition after receipt.arrow_forward
- Need for a Statement of Cash Flows. The accrual basis of accounting creates the need for a statement of cash flows. Explain.arrow_forwardUnder the direct method of preparing a statement of cash flows, what adjustment is made for depreciation expense?arrow_forwardIn computing the periods net operating cash flows, why are noncash expenses added back to net income?arrow_forward
- Explain the difference between the two methods used to prepare the operating section of the statement of cash flows. How do the results of these two approaches compare?arrow_forwardWhat are the components of cash? What items may be confused with cash, but normally are categorized under other balance sheet captions?arrow_forwardIn a completed worksheet, a. the debit column contains the cash inflows. b. the debit column contains the cash outflows. c. the credit column contains the cash inflows. d. the credit column contains only operating cash flows. e. None of these.arrow_forward
- The method of presenting cash flow from operations where net income is adjusted for items without any cash effect is called a. direct method b. indirect method c. allowance method d. reconciliation methodarrow_forwardHow to treat interest expense when preparing a Statement of Cash flows? Interest paid is reported as a cash outflow in the operating activities section on the statement of cash flows prepared under the indirect method. Answer: False. But why?arrow_forwardWhich of the following statements about cash received prior to the recognition of revenue in the fi nancial statements is most accurate? Th e cash is recorded as: B . accrued revenue, a liability.arrow_forward
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