Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

13. Statement of Cash Flows

Introduction to the Statement of Cash Flows

Financial Accounting

13. Statement of Cash Flows

Introduction to the Statement of Cash Flows

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Multiple Choice

Which of the following is NOT correct about the statement of cash flows?

It helps users assess a company’s ability to generate future cash flows.

It reports cash inflows and outflows from operating, investing, and financing activities.

It shows the company’s profitability over a period of time.

It is prepared using information from the income statement and balance sheet.

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Verified step by step guidance

Step 1: Understand the purpose of the statement of cash flows. The statement of cash flows is designed to provide information about a company’s cash inflows and outflows during a specific period, categorized into operating, investing, and financing activities. It helps users assess the company’s ability to generate future cash flows and manage cash effectively.

Step 2: Analyze the incorrect statement provided in the options. The statement 'It shows the company’s profitability over a period of time' is not correct because profitability is measured using the income statement, not the statement of cash flows. The cash flow statement focuses on cash movements, not profitability.

Step 3: Review the correct statements about the statement of cash flows. These include: (a) It helps users assess a company’s ability to generate future cash flows, (b) It reports cash inflows and outflows from operating, investing, and financing activities, and (c) It is prepared using information from the income statement and balance sheet.

Step 4: Compare the incorrect statement with the correct ones. The incorrect statement confuses the purpose of the cash flow statement with that of the income statement, which is specifically designed to show profitability over a period of time.

Step 5: Conclude that the correct answer is the statement 'It shows the company’s profitability over a period of time,' as this does not align with the purpose of the statement of cash flows.