Financial Reporting, Financial Statement Analysis and Valuation
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Chapter 3, Problem 1QE

Need for a Statement of Cash Flows. “The accrual basis of accounting creates the need for a statement of cash flows.” Explain.

Expert Solution & Answer
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To determine

Discuss the need of accrual basis of accounting for a statement of cash flows.

Explanation of Solution

The accrual basis of accounting records expenses and income when it is occurred. Realization of cash is not necessary for this system. Therefore, the need of statement of cash flow arises. The statement depicts actual cash received and paid during the year. The statement helps in analysis of company’s actual performance and short-term solvency.

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Financial Reporting, Financial Statement Analysis and Valuation

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