Which of the following statements about the statement of cash flows is correct?

• A. The statement of cash flows does not include information about cash received from issuing shares.
• B. The statement of cash flows only reports cash flows related to operating activities.
• C. The statement of cash flows is prepared using only the accrual basis of accounting.
• D. The statement of cash flows reports cash inflows and outflows from operating, investing, and financing activities.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the purpose of the statement of cash flows. It is a financial statement that provides information about a company's cash inflows and outflows during a specific period, categorized into operating, investing, and financing activities.
2. Step 2: Review the categories of cash flows. Operating activities include cash flows related to the core business operations, such as cash received from customers and cash paid to suppliers. Investing activities involve cash flows from the purchase or sale of long-term assets, such as equipment or investments. Financing activities include cash flows related to borrowing, repaying debt, or issuing shares.
3. Step 3: Analyze the incorrect statements. The statement of cash flows does include information about cash received from issuing shares, as this is part of financing activities. It does not only report cash flows related to operating activities; it also includes investing and financing activities. Additionally, the statement of cash flows is prepared using the cash basis of accounting, not the accrual basis.
4. Step 4: Identify the correct statement. The statement of cash flows reports cash inflows and outflows from operating, investing, and financing activities, providing a comprehensive view of a company's cash movements.
5. Step 5: Conclude that the correct answer is the statement that highlights the reporting of cash inflows and outflows from operating, investing, and financing activities, as this aligns with the purpose and structure of the statement of cash flows.