Please respond to the following in an informative answer of which others can learn from.1.. GAAP and IFRS require a cash flow statement for each period reported (Whalen, Baginski, & Bradshaw, 2018). Managers have some discretion on preparing the cash flow statement and evaluating a cash flow statement may discover the best method chosen for the company (Petryni, n.d.). Evaluating can be helpful in uncovering accounting discretions used (Whalen, Baginski, & Bradshaw, 2018). The cash flow statement reports all sources and uses of cash during a business period (Whalen, Baginski, & Bradshaw, 2018). According to research, the direct method of preparation of a cash flow statement provides a clearer picture for investors whose cash in being utilized by the company (Petryni, n.d.). Again, both FASB/GAAP and IFRS consider that the direct method cash flow statement help to provide more security and confidence to investors (Petryni, n.d.). Another evaluation benefit is that the cash flow statement emphasizes the relationship between net income and cash flows allowing for drawing inference about earnings quality, liquidity and credit risks (Whalen, Baginski, & Bradshaw, 2018). Reference Petryni, Matt. (n.d.). The advantages of the direct method of cash flow. Small Business – Chron.com. Retrieved from http://smallbusiness.chron.com/advantages-direct-method-cash-flow-31395.htmlWhalen, J., Baginski, S., & Bradshaw, M. (2018). Financial reporting, financial statement analysis and valuation(9th ed.) Mason, OH: Cengage Learning. ISBN-13: 972. The statement of cash flows breaks down the operating, investing, and financing that undoes the accrual accounting of the balance sheet and income statement (Wahlen et al., 2018). When analyzing the statement of cash flows it is important to understand how net cash flows from operating, investing, and financing activities interact with one another, how the fluctuation of the cash balance on the balance sheet impacts the statement of cash flows, and the connection between net income and cash flows from operations (Wahlen et al., 2018). In looking at the statement of cash flows you can understand the ability of cash flow to be managed by a company that may show strong sales on the income statement (Sageworks, 2014). A second piece of information that can be gained from the statement of cash flows is if your operations are actually generating cash (Sageworks, 2014). Finally, the statement of cash flows allows you to see the details around how you receive cash and how you spend it (Sageworks, 2014). This information gained from the statement of cash flows allows analysts to determine the health of an organization specific to their industry. ReferenceSageworks. (2014, July 22). What You Should Be Learning From Your Cash Flow Statements. Retrieved April 11, 2020, from https://www.inc.com/sageworks/gaining-insight-from-your-cashflow-statement.htmlWahlen, James Michael, et al. Financial Reporting Statement Analysis, and Valuation: a Strategic Perspective. 9th ed., Cengage, 2018.
