The primary purpose of the statement of cash flows is to
A)show the deficit of cash during the period.
B)show the cash balance at the end of the period.
C)provide information about the profit or loss during the accounting period.
D)provide information about the cash receipts and cash payments made during the accounting period.

Question

Quizplus · Accepted Answer

The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments made during the accounting period. This statement shows the sources and uses of cash and helps in assessing the liquidity, solvency, and financial flexibility of the company. It distinguishes between operating, investing and financing activities that affect cash flows and helps in making important business decisions. Thus, option D is the correct choice. Option A is incorrect because the statement of cash flows does not show the deficit of cash but rather the inflow and outflow of cash. Option B is incorrect because it only shows the cash balance at the end of the period and not the cash flows during the period. Option C is also incorrect because it is the income statement that provides information about the profit or loss during the accounting period.

The Primary Purpose of the Statement of Cash Flows Is