All of the following are limitations of the statement of cash flows, except:
A) financial ratios based on cash flow data are better at predicting financial distress for companies than other ratios that rely solely on accrual accounting balances.
B) it provides past cash flow data, which may not be a good predictor of future cash flows.
C) the direct method of determining cash flows from operating activities is more costly to apply than the indirect method.
D) non-cash transactions and events while relevant to the financial affairs of the entity are excluded from the statement of cash flows.

Question

Quizplus · Accepted Answer

Options B, C, and D are all limitations of the statement of cash flows that are commonly discussed in accounting literature. Option A is not a limitation, but a strength of the statement of cash flows as it suggests that cash flow data is more reliable than accrual-based accounting ratios for predicting financial distress.

All of the Following Are Limitations of the Statement of Cash