Q2Q
Question
How can information based on past transactions be used to predict future cash flows?
Step-by-Step Solution
Verified Answer
Past transactions are useful in predicting important trends. It is also helpful in providing information regarding the future performance of cash flows.
1Step 1: 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.
2Step 2: 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.
Other exercises in this chapter
7Q
How can earnings management affect the quality of earnings?
View solution Question 1
What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement?
View solution 2
How can information based on past transactions be used to predict future cash flows?
View solution Q3Q
Identify at least two situations in which important changes in value are not reported in the income statement.
View solution