Which of the following best describes what is reported by a statement of cash flows?

• A. The inflows and outflows of cash during a specific period, classified into operating, investing, and financing activities.
• B. The financial position of a company at a specific point in time, including assets, liabilities, and equity.
• C. The changes in shareholders' equity during a period, including dividends and stock issuances.
• D. The revenues and expenses recognized during a specific period, regardless of when cash is received or paid.

Answer: (A)

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 the cash inflows and outflows of a company during a specific period.
2. Step 2: Recognize the three main classifications of cash flows in the statement: operating activities (related to the core business operations), investing activities (related to the purchase or sale of long-term assets), and financing activities (related to borrowing, repaying debt, or issuing equity).
3. Step 3: Compare the descriptions provided in the options to the purpose of the statement of cash flows. Eliminate options that describe other financial statements, such as the balance sheet (financial position at a specific point in time), statement of changes in equity (changes in shareholders' equity), or income statement (revenues and expenses recognized).
4. Step 4: Identify the option that correctly describes the inflows and outflows of cash during a specific period, classified into operating, investing, and financing activities.
5. Step 5: Confirm that the selected option aligns with the definition and purpose of the statement of cash flows, ensuring it accurately reflects the cash movement within the company.