Paper 3 · Statement of cash flows
Which of the following is a genuine benefit of preparing a statement of cash flows, in addition to the income statement and statement of financial position?
AIt always shows a highly accurate forecast of a company's future profits and cash needs, replacing the need for budgets and forecasts entirely.
BIt removes the need to disclose related-party transactions and contingent liabilities in the notes to the financial statements.
CIt simply restates figures already shown in the statement of financial position, presented in a different order, without adding any genuinely new information.
DIt shows the entity's ability to generate cash and to meet its short-term obligations, information not directly visible from the income statement alone.
Explanation: A statement of cash flows highlights liquidity: it shows whether the business generates enough cash to meet its short-term obligations, which the income statement (based on accruals, not cash) does not directly show.
Derived from ZIMSEC Accounting Paper 3, June 2019, Q2
