What is the Purpose of the Statement of Cash Flows

The Purpose of Cash Flows Statement is to show the Cash position of a business for a accounting period resulting from Operating Activities, Investing Activities and Financing Activities. It shows the gross cash receipts (Cash Inflows) and gross cash payments (Cash Outflows) alongwith the net changes (Gross Receipts - Gross Payments) resulting from either Operating Activities, Investing Activities and Financing Activities during the period.

The investor who wants to invest in the company should give importance to the analysis of Cash Flow Statement while investing in a company because this statement shows the Liquidity and Solvency position of the business.

The Cash Basis of Accounting is utilized in this statement that is why all the non cash items (Depreciation, Bad Debts, etc) are deducted or added back to Net Profit / Net Income / Net Loss during the particular accounting to show only the Cash Receipts and Cash Payments to meet Working Capital and Stabilize the Business in the long run.

The Cash flow Statement or Statement of Cash Flows is a part of Financial Statements and it is reported to Users of Financial Statements Or Information at the end of accounting period.