Purpose of the Statement of Cash Flows for Newbies

The purpose of the statement of cash flows A financial statement that lists cash inflows (receipts) and cash outflows (payments) during a period; arranged by operating, investing, and financing. is to report cash receipts (inflows) and cash payments (outflows) during a period. This includes separately identifying the cash flows related to operating, investing, and financing activities. The statement of cash flows does more than simply report changes in cash. It is the detailed disclosure of individual cash flows that makes this statement useful to users. Information in this statement helps users answer questions such as these:

• How does a company obtain its cash?
• Where does a company spend its cash?
• What explains the change in the cash balance?

The statement of cash flows addresses important questions such as these by summarizing, classifying, and reporting a company’s cash inflows and cash outflows for each period.

Point: Internal users rely on the statement of cash flows to make investing and financing decisions. External users rely on this statement to assess the amount and timing of a company’s cash flows.