Question

What are the objectives of preparing cash flow statement?

Answer 1

The important objectives for preparing Cash Flow Statement are as follows:

1. The most important objective that is fulfilled by preparing Cash Flow Statement is to ascertain the gross inflows and outflows of cash and cash equivalents from various activities.

2. Secondly, Cash Flow Statement helps in analysing various reasons responsible for change in the cash balances during an accounting year.

3. This statement helps in analysing and understanding the liquidity and solvency of a company , thereby, depicting the true liquidity position to the creditors and the investors.

4. Cash Flow Statement also helps in ascertaining the requirement and availability of cash in near future.