In previous chapters we have discussed the income statement (which reports on the results of operations for a period of time), the retained earnings statement (which reports on the reasons for changes in retained earnings for a period of time), and the balance sheet (which reports on the financial position of an entity at a point in time). Although a comparison of a balance sheet at the end of a period with a balance sheet at the beginning of the same period will disclose many changes (such as increases or decreases in certain assets, increases or decreases in certain liabilities, and increases or decreases in certain stockholders' equity items), none of the three financial statements discussed thus far discloses how an entity obtains cash and what it does with that cash during its financial reporting period. Thus, a fourth general purpose financial statement is required—the statement of cash flows. The primary purpose of this statement is to provide relevant information about the cash receipts and cash payments of an enterprise during a time period.


  1. Indicate the usefulness of the statement of cash flows. The statement of cash flows provides information about the cash receipts, cash payments, and net change in cash resulting from the operating, investing, and financing activities of a company during the period.
  2. Distinguish among operating, investing, and financing activities. Operating activities include the ...

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