The main purpose of a statement of cash flows of a firm is to provide relevant information about
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A. B. C. D. E.B
The statement cash flows helps investors, creditors and other users to assess the firm's ability to generate net cash inflows, meet its obligations, pay dividends and obtain external financing.
The main purpose of a statement of cash flows of a firm is to provide relevant information about the cash receipts and cash disbursements of an enterprise during a specific period. This information helps users of financial statements, such as investors, creditors, and other stakeholders, to understand how cash is being generated and utilized by the firm.
Option B, "the cash receipts and cash disbursements of an enterprise during a period," accurately describes the purpose of the statement of cash flows. Let's take a closer look at why the other options are not correct:
A. Differences between net income and associated cash receipts and disbursements: While this option refers to the relationship between net income and cash flows, it does not capture the main purpose of the statement of cash flows, which is to report actual cash receipts and cash disbursements.
C. A firm's ability to generate future positive net cash flows: While the statement of cash flows can provide insights into a firm's ability to generate future cash flows, its primary purpose is to report historical cash inflows and outflows. It focuses on past activities rather than predicting future cash flows.
D. A firm's ability to meet cash operating needs: While the statement of cash flows can indirectly provide information about a firm's ability to meet its cash operating needs, it is not its main purpose. Instead, the statement focuses on presenting information about cash receipts and disbursements from various activities (operating, investing, and financing) rather than specifically assessing the firm's cash operating needs.
E. None of these answers: This option implies that none of the provided answers are correct. However, as explained above, option B accurately describes the purpose of the statement of cash flows.
In summary, the main purpose of a statement of cash flows is to provide information about the cash receipts and cash disbursements of an enterprise during a specific period. This information is crucial for understanding how cash is generated and utilized by the firm, and it helps users of financial statements assess its cash flow position and liquidity.