Purpose and elements of statement of cash flows gaap requires the
The statement of cash flows is used to report the flow of cash into and out of a business during a specific period. It provides information about the sources and uses of cash for a given time period, as well as changes in cash related assets like checking accounts and savings accounts. The main purpose of the statement is to provide insight into a company’s liquidity, solvency, and financial flexibility by showing where its money has come from and how it has been spent.
There are three categories that must be reported in a statement of cash flows: operating activities, investing activities, and financing activities. Operating activities involve generating revenue through day-to-day operations (e.g., selling products or services). Investing activities involve any purchase or sale of long-term investments such as stocks, bonds, real estate, etc. Financing activities include acquiring capital from external sources (i.e., debt or equity) and returning capital to investors when profits have been earned. These categories allow users to understand more clearly where funds are coming from/going to within the company over time so they can make more informed decisions about their financing strategies going forward.