One rationale for the statement of cash flows is to:
A) ensure that the cash account balances at year-end.
B) reconcile differences between net income and cash receipts and disbursements.
C) calculate the company's free cash flow.
D) examine the cash effects of income from discontinued operations, extraordinary items and changes in accounting principles.

Question

Quizplus · Accepted Answer

The statement of cash flows is designed to reconcile differences between net income and cash receipts and disbursements. This is important because a company can report a net income on its income statement, but not have enough cash on hand to pay its bills. By analyzing cash inflows and outflows, the statement of cash flows provides information about a company's liquidity and ability to meet its financial obligations. It also helps investors and analysts to assess a company's financial health and future prospects.

One Rationale for the Statement of Cash Flows Is To