2 - Intermediate Accounting (Kieso)

Question

How can information based on past transactions be used to predict future cash flows?

Step-by-Step Solution

Answer

Past transactions are useful in predicting important trends. It is also helpful in providing information regarding the future performance of cash flows.

Meaning of Cashflows

Cash flows refer to the movement of cash coming in and out of a company. Receiving cash means cash inflows, and Spent cash means cash outflows of a company.

Evaluation of past performance to predict future cash flows

Past revenues and expenses incurred by a company during its previous year of operation can help predict the performance of the company for the future and can also be useful for comparing the performance of its competitors.