Risch Company each year prepares an income statement and balance sheet. Tom Mart

Question

Risch Company each year prepares an income statement and balance sheet. Tom Martin, the controller, issued a memo to Debbie Kreiger, vice president, that the company should prepare a statement of cash flows. Debbie called the controller and told him that she would not let a cash flows statement be published, that this type of information is for internal purposes only, and that the public has no right to these data. She said that the competition would kill them if they got this information. Do you agree with Debbie's position or with Tom's? Be sure to justify your answer! No plagiarized answers please, please type out answers

Explanation / Answer

I do agree with Tom's view.The three standard statements of most financial packages include the Balance Sheet , the Income or Profit & Loss (“P&L”) Statement , and the Cash Flow Statement. The P&L is often considered the most important and relevant statement by most owners, managers, and analysts, however, the astute accountant can make a strong argument about why the Balance Sheet is really the most important statement of the three. And then there is the Cash Flow Statement, often overlooked, usually misunderstood and skimmed over with a fleeting glance, but a very critical and integral part of the financial statements. The Cash Flow Statement is the “new kid on the block” that was first required on the financial statements of public companies in 1988, but is an integral part of financial reporting that ties the other reports together for a complete picture of a company’s financial health. It tells owners and other financial statement users one very important thing – how much cash the company generates.

Cash can come from both internal and external sources, and the Statement of Cash Flow helps companies and investors separate and observe the differences and extent of the cash inflows and outflows. Internal, as opposed to external cash sources, provide a company with successful attributes and assurances that include:
1) preventing and monitoring company debt
2) preventing unnecessary expenditures from interest, late payment penalties and debt costs
3) ensuring timely investment and cash available for investment opportunities
4) ensuring timely payment of expenses and debts
5) and most importantly – ensuring a level of regular business income without relying on outside investment or cash borrowing

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