Loose Leaf for Fundamental Accounting Principles
Loose Leaf for Fundamental Accounting Principles
23rd Edition
ISBN: 9781259687709
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 16, Problem 1DQ
To determine

Introduction:

The statement of cash flows is prepared for analysis and reporting purposes of cash transactions of a company during the period. It mainly uses three sections for reporting cash inflows and outflows, namely cash flows from operating, investing and financing activities respectively.

To determine:

To find solutions to the business challenges with the help of the statement of cash flows of a company respectively.

Expert Solution & Answer
Check Mark

Answer to Problem 1DQ

Solution:

The main purpose of the statement of cash flows is to provide information about cash inflows and cash outflows resulting from the operating, investing and financing activities of a company during the period.Also, it helps in planning the repayment of loans, replacement of fixed assets and other long-term plans for business expansion. Thus, it is vital for capital budgeting decisions.

Explanation of Solution

The reporting purpose of the statement of cash flows can answerthe following questions as explained below:

1. Net change in cash flows from operating, investing and financing activities- The management keeps a track of the cash flows resulting from the operating, investing and financing activities during the period. This helps to maintain and expand the company’s on-goingbusiness operationsby obtaining required loans, arranging finances for production and inventory management, allocation of funds for marketing and advertising of the product and so on.

2. Capital budgeting decisions- The statement of cash flows helps in planning the repayment of loans, replacement of fixed assets and other similar long-term plans for business expansion. The long-term projects of a company involve investments in capital assets, project financing, and generating cash inflows over the life of such project, which is pre-planned and analyzed by the management using capital budgeting techniques.

Conclusion

Thus, we conclude that the managementfindssolutions to the business challenges with the help of the statement of cash flows of a company respectively.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 16 Solutions

Loose Leaf for Fundamental Accounting Principles

Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education