Which of the following best explains how a spreadsheet can assist a company in preparing a statement of cash flows?

• A. It automatically generates journal entries for all cash transactions.
• B. It helps organize and classify cash transactions into operating, investing, and financing activities.
• C. It replaces the need for supporting documentation for cash receipts and payments.
• D. It eliminates the need to reconcile net income to net cash provided by operating activities.

Answer: (B)

Verified step by step guidance

1. Understand the purpose of a statement of cash flows: It provides information about a company's cash inflows and outflows, categorized into operating, investing, and financing activities.
2. Recognize the role of a spreadsheet: A spreadsheet is a tool that helps organize and classify data systematically, making it easier to track and analyze cash transactions.
3. Identify the key activities in the statement of cash flows: Operating activities involve day-to-day business operations, investing activities relate to asset purchases and sales, and financing activities pertain to borrowing and equity transactions.
4. Explain how a spreadsheet assists in classification: By using rows and columns, a spreadsheet allows the user to sort cash transactions into the appropriate categories (operating, investing, financing) based on their nature.
5. Clarify the limitations of a spreadsheet: While it helps organize and classify transactions, it does not replace journal entries, supporting documentation, or the reconciliation process for net income to net cash provided by operating activities.