.11 MetroPCS 10:59 AM × GAAP.5.docx GAAP #5 You have been asked by your boss whe

Question

.11 MetroPCS 10:59 AM × GAAP.5.docx GAAP #5 You have been asked by your boss whether is necessary to prepare a statement of cash flows as part of the financial statements. (US GAAP ISSUE) What will you tell your boss? EACH GAAP ASSIGNMENT WILL HAVE THE FOLLOWING FORMAT: 1. PROBLEM TO BE RESEARCHED: What is the question being asked? 2. SOURCES FOR RESEARCH: (EX. FASB TEXT PAGE GAAP GUIDE, ETC.) A CITATION MUST BE IDENTIFIED (Le. U.S. GAAP (ASC) ACCOUNTING STANDARDS CODIFICATION TOPIC 111-11 FOR EXAMPLE Where did you get you answer? (AN ASC NUMBER MUST BE USED AS A CITATION REFERENCE) 3. CONCLUSION-What is your answer?

Explanation / Answer

Ans : 1) What is Cashflow Statement? And is it important to prepare it as a part of financial statements?

There are 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 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 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 gives a central idea to the owners of the company as well as users of financial statement about a very important and liquid factor in the business and i.e CASH.

Cash is defined as liquid asset. The only asset which is fluctuating throughout the financial year in the form of inflow and outflow. If cash is kept unrecorded it can be misused and also manipulated in the form of financial presentation at the year end closing statements. Cash in hand is very important asset for a company in times of emergency and payback of any emergent liability. Than why not a statement which records the inflow and outflow of cash throughout a business period and gives an idea of available cash resources in hand as on date, given a priority in the set of financial statements? It was therefore Cashflow statement got popular in the accounitng world , a statement which keeps check on the most volatile and liquid Cash.

Ans :2 : Various sources from Google ( Accounting Guide sites) as well as books to collect the material and data for preparation of this Report.

Ans : 3 : Conclusion :

Strong cash flow puts the company in a good position to expand its business, invest in new projects and make dividend payments to shareholders. Cash being volatile and readily available in nature should can be used anytime any where to pay any debt but at the same time must be handled with care to avoid misuse of it and getting it unaccounted. That is the reason why Cash Flow Statements is important to be prepared as it gives us the exact income source of the cash due to its format. A cashflow Statement is divided into 3 parts, namely,

Operating Cashflow

Investing Cashflow

Financing Cashflow

Thus when you see a closing balance in the balance sheet asset side as cash balance, its just have not arrived by mere single source, and that can be found out by going into deep into this topic and only statement which could help us into it is none other than a Cash Flow Statement.

So now I can convince my boss why Cash flow is so important and useful and a integral part of Financial Statements.

ASC 230 - Statement Of Cashflow - US GAAP Codification of Accounting.

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