Which of the following statements is NOT correct about the financial statements?

• A. The statement of changes in equity shows changes in owners' equity during the period.
• B. The income statement shows the revenues and expenses over a period of time.
• C. The balance sheet reports a company's financial position at a specific point in time.
• D. The statement of cash flows reports only the cash inflows from operating activities.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the purpose of each financial statement. The statement of changes in equity shows the changes in owners' equity during the period, including contributions, distributions, and retained earnings. The income statement reports revenues and expenses over a specific period, showing the company's profitability. The balance sheet provides a snapshot of the company's financial position at a specific point in time, including assets, liabilities, and equity.
2. Step 2: Focus on the statement of cash flows. This financial statement reports cash inflows and outflows from three main activities: operating, investing, and financing. It does not exclusively report cash inflows from operating activities; it includes all cash movements related to the three categories.
3. Step 3: Compare the given statements to the definitions of the financial statements. Identify which statement is inconsistent with the standard definitions. The statement claiming that the statement of cash flows reports only cash inflows from operating activities is incorrect because it omits cash flows from investing and financing activities.
4. Step 4: Confirm the correct answer by eliminating the other options. The statement of changes in equity, income statement, and balance sheet descriptions are accurate based on their respective purposes and definitions.
5. Step 5: Conclude that the incorrect statement is: 'The statement of cash flows reports only the cash inflows from operating activities,' as it misrepresents the scope of the statement of cash flows.