The statement of cash flows is a financial statement that shows ______.

• A. the changes in shareholders' equity over a period
• B. the inflows and outflows of cash during a specific period
• C. the company's revenues and expenses for a period
• D. the financial position of a company at a specific date

Answer: (B)

Verified step by step guidance

1. Understand the purpose of the statement of cash flows: It is a financial statement that provides information about the inflows and outflows of cash during a specific period, helping stakeholders assess the company's liquidity and cash management.
2. Identify the key components of the statement of cash flows: These include operating activities, investing activities, and financing activities, which categorize cash transactions based on their nature.
3. Differentiate the statement of cash flows from other financial statements: Unlike the income statement (which shows revenues and expenses) or the balance sheet (which shows the financial position at a specific date), the statement of cash flows focuses solely on cash movements.
4. Recognize the importance of cash flow analysis: It helps in understanding how a company generates and uses cash, ensuring it has sufficient liquidity to meet obligations and invest in growth opportunities.
5. Apply this knowledge to interpret the statement of cash flows: Look for patterns in cash inflows and outflows to evaluate the company's financial health and operational efficiency over the specified period.