The statement of cash flows is a required financial statement, just like the income statement and balance sheet. Its purpose is not to measure the quantity of the cash flow during any given accounting period; that could be obtained simply by comparing the total of all cash increasing activity with all cash decreasing activity during the accounting period. The statement of cash flows examines a qualitative feature, specifically the reliability, of cash flows during the accounting period.
This paper covers the classification of the statement of cash flows, as well as methods of compiling the statement of cash flows. It also provides an example of the methods used for Operating activities.
This article is from the Accounting Instructors’ Report, an electronic journal that provides teaching tips and insights to those who teach accounting and other business courses.
J. Thomas Franco, Wayne County Community College