Question

Explain why the statement of cash flows provides useful information that goes beyond income statement and balance sheet data.

Short answer

The cash flow statement exhibits information beyond the income statement and the balance sheet. It provides a reconciliation between the opening balance of the cash and cash equivalent and the closing balance of the cash and cash equivalent over the reporting period.

Step-by-step solution

Financial statements 

Financial statements are described as the summary report of the organization’s financial position, performance, and cash flows.It is prepared by the management of the company at the end of the reporting period.

Cash flow statement 

A cash flow statement is prepared by an organization to show the movement of cash in the company.It is a component of the financial statements of the company. It is prepared to reconcile the cash and cash equivalent balance, which is impossible to do from the income statement and balance sheet alone.