ACC 306 Intermediate Accounting II
Introduction to the Statement of Cash Flows and its role and impact in financial reporting
Student Name: LinLin Zhang
Instructor: Mark Taylor
Date: December 11, 2014

[no notes on this page]

-1-

Introduction to the Statement of Cash Flows and its role and impact in financial reporting 1

Introduction to the Statement of Cash Flows and its role and impact in financial reporting

LinLin Zhang

[no notes on this page]

-2-

Introduction to the Statement of Cash Flows and its role and impact in financial reporting 2

Abstract
The purpose of the financial reporting is to provide investors and creditors with useful information for investment decision making. This is usually done in the form of financial statement. However, the balance sheet and income statement don’t provide enough information for investors and creditors to make those decisions. The statement of Cash
Flows comes to fill this gap. It indicates the health and viability of the enterprise. The statement of Cash Flows provides more accurate and valid information for investors and creditors to make critical business decisions.
In this paper, we will cover the following topics: first of all, we will give an introduction about the Statement of Cash Flows and how it is used to evaluate the viability of the enterprise. Secondly, we will introduce the concept of cash flow and its role and importance to enterprise. Thirdly, we will talk about the elements which are incorporated in the Statement of Cash Flow. Furthermore, we will briefly talk about the constitution of the inflows and outflows on the Statement of Cash Flows, how those activities are represented and what activity notes would be incorporated. At last, we will reach the conclusion.

[no notes on this page]

-3-

Introduction to the Statement of Cash Flows and its role and impact in financial reporting 3

I. Introduction
The purpose of the financial reporting is to provide investors and creditors with useful information for investment decision making. This is usually done in the form of financial statement. The decision making requires the help of projections of the relative ability of a business to generate future cash flows and of the risk associated with those forecasts.
However, the balance sheet and income statement don’t provide enough information for investors and creditors to make those investment decisions.
The statement of Cash Flows comes in to fill this gap. It indicates the health and viability of the enterprise. The statement of Cash Flows provides more accurate and valid information for investors and creditors to make critical business decisions. It gives a complete picture of the cash flowing into and out of the enterprise and can be used to evaluate the ability of generating future cash flow to itself for an enterprise. It provides investors and creditors a way to forecast the performance of the enterprise in terms of future cash generating ability.
The rest of this paper is organized as this: in Part II, we will introduce the concept of cash flows and discuss its importance to an enterprise, a real world example will be given to elaborate it. In part III, we will introduce the elements which are incorporated in the
Statement of Cash Flow. And in Part IV, we will briefly talk about the constitution of the inflows and outflows on the Statement of Cash Flows and how those activities are

[no notes on this page]

-4-

Introduction to the Statement of Cash Flows and its role and impact in financial reporting 4 represented and what activity notes would be incorporated. In Part V, we will make the conclusion. II. Cash Flows and its importance
Cash flows show the cash activities of an enterprise. They are constructed by the cash flows into and out of the enterprise during the business operation. The Statement of Cash
Flows fills the gap of insufficient cash flow information of the enterprise reported by balance sheet and income statement. The statement of Cash