Which of the following is a primary purpose of the statement of cash flows?

• A. To provide information about a company's cash receipts and cash payments during a period
• B. To determine the market value of a company's assets
• C. To report the financial position of a company at a specific point in time
• D. To show the profitability of a company over a period

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the purpose of the statement of cash flows. The statement of cash flows is a financial report that provides information about a company's cash inflows (receipts) and outflows (payments) during a specific period. It helps stakeholders understand how cash is generated and used in operating, investing, and financing activities.
2. Step 2: Analyze the options provided in the question. The options include: (1) providing information about cash receipts and payments, (2) determining the market value of assets, (3) reporting financial position at a specific point in time, and (4) showing profitability over a period.
3. Step 3: Eliminate incorrect options. The statement of cash flows does not determine the market value of assets (this is related to valuation methods) nor does it report the financial position at a specific point in time (this is the purpose of the balance sheet). It also does not directly show profitability over a period (this is the purpose of the income statement).
4. Step 4: Focus on the correct option. The primary purpose of the statement of cash flows is to provide information about a company's cash receipts and cash payments during a period. This helps users assess the company's liquidity, solvency, and financial flexibility.
5. Step 5: Conclude that the correct answer is the option stating 'To provide information about a company's cash receipts and cash payments during a period,' as this aligns with the primary purpose of the statement of cash flows.