{"id":345,"date":"2024-09-06T16:48:54","date_gmt":"2024-09-06T16:48:54","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/purpose-of-the-statement-of-cash-flows\/"},"modified":"2024-09-11T19:57:54","modified_gmt":"2024-09-11T19:57:54","slug":"purpose-of-the-statement-of-cash-flows","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/purpose-of-the-statement-of-cash-flows\/","title":{"raw":"Purpose of the Statement of Cash Flows","rendered":"Purpose of the Statement of Cash Flows"},"content":{"raw":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\r\n<ul>\r\n \t<li>Explain the purpose of the Statement of Cash Flow<\/li>\r\n<\/ul>\r\n<\/section>&nbsp;\r\n\r\nThe statement of cash flows provides cash receipt and cash payment information and reconciles the change in cash for a period of time. Cash receipts and cash payments are summarized and categorized as operating, investing, or financing activities. Simply put, the statement of cash flows indicates where cash came from and where cash went for a period of time.\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/04170731\/buildings-984195_1920.jpg\"><img class=\"size-medium wp-image-5178 alignright\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/04170731\/buildings-984195_1920-300x200.jpg\" alt=\"A skyscraper building.\" width=\"300\" height=\"200\" \/><\/a>\r\n\r\nSince cash flows are vital to a company\u2019s financial health, the statement of cash flows provides useful information to management, investors, creditors, and other interested parties. It provides information about the effects on cash of the operating, investing, and financing activities of a company during an accounting period; it reports on past management decisions on such matters as issuance of capital stock or the sale of long-term bonds. This information is available only in bits and pieces from the other financial statements. The statement of cash flows presents the effects on cash of all significant operating, investing, and financing activities.\r\n\r\nThe statement may show a flow of cash from operating activities large enough to finance all projected capital needs internally rather than having to incur long-term debt or issue additional stock. Alternatively, if the company has been experiencing cash shortages, management can use the statement to determine why such shortages are occurring. Using the statement of cash flows, management may also recommend to the board of directors a reduction in dividends to conserve cash.\r\n\r\n<section class=\"textbox tryIt\" aria-label=\"Try It\">[ohm2_question hide_question_numbers=1]25231[\/ohm2_question]<\/section>","rendered":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\n<ul>\n<li>Explain the purpose of the Statement of Cash Flow<\/li>\n<\/ul>\n<\/section>\n<p>&nbsp;<\/p>\n<p>The statement of cash flows provides cash receipt and cash payment information and reconciles the change in cash for a period of time. Cash receipts and cash payments are summarized and categorized as operating, investing, or financing activities. Simply put, the statement of cash flows indicates where cash came from and where cash went for a period of time.<\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/04170731\/buildings-984195_1920.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-5178 alignright\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/04170731\/buildings-984195_1920-300x200.jpg\" alt=\"A skyscraper building.\" width=\"300\" height=\"200\" \/><\/a><\/p>\n<p>Since cash flows are vital to a company\u2019s financial health, the statement of cash flows provides useful information to management, investors, creditors, and other interested parties. It provides information about the effects on cash of the operating, investing, and financing activities of a company during an accounting period; it reports on past management decisions on such matters as issuance of capital stock or the sale of long-term bonds. This information is available only in bits and pieces from the other financial statements. The statement of cash flows presents the effects on cash of all significant operating, investing, and financing activities.<\/p>\n<p>The statement may show a flow of cash from operating activities large enough to finance all projected capital needs internally rather than having to incur long-term debt or issue additional stock. Alternatively, if the company has been experiencing cash shortages, management can use the statement to determine why such shortages are occurring. Using the statement of cash flows, management may also recommend to the board of directors a reduction in dividends to conserve cash.<\/p>\n<section class=\"textbox tryIt\" aria-label=\"Try It\"><iframe loading=\"lazy\" id=\"ohm25231\" class=\"resizable\" src=\"https:\/\/ohm.one.lumenlearning.com\/multiembedq.php?id=25231&theme=lumen&iframe_resize_id=ohm25231&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><\/section>\n","protected":false},"author":6,"menu_order":3,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Purpose of the Statement of Cash Flows\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective\",\"author\":\"James Don Edwards, University of Georgia & Roger H. 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