KRISTINE DIANNE M.

VILLAROMAN

1. Why is the Cash Flow Statement identified as one of the financial statements?

A cash flow statement provides data regarding all cash inflows a company receives from

its on-going operations and external investment sources. The cash flow statement has

been adopted as a standard financial statement because it eliminates allocations, which

might be derived from different accounting methods, such as various timeframes for

depreciating fixed assets.

2. What is the difference between the Cash Flow and Funds Flow statements?

A cash flow statement is a statement that shows the inflows and outflows of cash and

cash equivalents over a period. A fund flow statement is a statement showing the changes

in the financial position of the entity in different accounting years. A cash flow statement

is used to show the reasons for movements in the cash at the beginning and at the end of

the accounting period, while a funds flow statement shows the reason for the changes in

the financial position, with respect to previous year and current accounting year.

3. Why are financial statements very important for an organization?

Financial statements are very important as it accurately reflects business performance and

financial position of the company. It helps all stakeholders to evaluate and take suitable

economic decisions by comparing past and current performance and therefore predict

future performance and growth of the company.

4. Give examples of the following activities/decisions of any organization:

 Financing activities

 Investment activities

 Dividend decisions