Q-14-2RQ
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Question: How does the statement of cash flows help users of financial statements?
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Answer
The statement of cash flows helps users in various ways such as comparison with other firms in operating efficiency, liquidity, and solvency, reconciliation of cash balance, etc
1Step 1: Users of statement of cash flow
- Owners of the company
- Potential lenders
- Accounting personnel
- Employees
- Investors
2Step 2: How the statement of cash flows help users of financial statements
- Owners of the company: Owners use statements of cash flow to check the operating efficiency and compare it with other firms.
- Potential lenders: Potential lenders can analyze the liquidity and solvency of the company with the help of a statement of cash flow.
- Accounting personnel: A statement of cash flows can be used to reconcile the cash balance in the balance sheet.
- Employees: Employees use statements of cash flows to check their upcoming possible bonuses and increments.
- Investors: The financing and investing activities in the cash flow statement helps investors to assess the decision-making power of the company.
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