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Q-14-2RQ

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Horngren'S Financial And Managerial Accounting
Found in: Page 768

Short Answer

Question: How does the statement of cash flows help users of financial statements?

Answer

The statement of cash flows helps users in various ways such as comparison with other firms in operating efficiency, liquidity, and solvency, reconciliation of cash balance, etc

See the step by step solution

Step by Step Solution

Step 1: Users of statement of cash flow

  1. Owners of the company
  2. Potential lenders
  3. Accounting personnel
  4. Employees
  5. Investors

Step 2: How the statement of cash flows help users of financial statements

  1. Owners of the company: Owners use statements of cash flow to check the operating efficiency and compare it with other firms.
  2. Potential lenders: Potential lenders can analyze the liquidity and solvency of the company with the help of a statement of cash flow.
  3. Accounting personnel: A statement of cash flows can be used to reconcile the cash balance in the balance sheet.
  4. Employees: Employees use statements of cash flows to check their upcoming possible bonuses and increments.
  5. Investors: The financing and investing activities in the cash flow statement helps investors to assess the decision-making power of the company.

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