If a firm presents an income statement and a balance sheet, why is it necessary that a statement of cash flows also be presented?
The income statement shows a summary of the transactions within a certain period of time. The Balance sheet shows the financial resources and what is owed. The cash flow statement shows the money that is being moved around. The inflows and outflows of cash are included. The cash flow statement is still needed because it shows the cash and how it is managed. It shows how a company is receiving cash and how it generates the net cash flows. The cash flow statement shows the operating activities, investing activities and financing activities.
Using the descriptions of assets, liabilities, and stockholders' equity, summarize the changes to these accounts for cash inflows and changes for cash outflows.
Changes in cash inflows and changes in cash outflows happen when there’s a change in assets, liabilities and stockholders’ equity. When there is a decrease in account receivable then there will be an increase in the cash flow. When there is an increase in accounts receivable then there will be decrease in the cash flow. When the company collects funds is when the cash will increase.
Depreciation is often considered a major source of funds. Do you agree? Explain.
I don’t agree. I don’t think depreciation should be considered a major source of funds because depreciation is really a debt. If you own a car and you pay $28,000 for it but are making payments that incur fees such as interest fees; then not only has that vehicle depreciated as soon as it was driven off the lot but now you owe additional fees as well.