What is the primary purpose of a cash flow statement?

• A. To show profits
• B. To show asset values
• C. To show cash receipts and payments
• D. To show shareholder equity changes

Answer: (C)

The main idea here is tracking cash movements. A cash flow statement shows the actual cash inflows (receipts) and outflows (payments) during a period, detailing how cash moves through operating activities, investing activities, and financing activities. This focus on cash movement helps assess liquidity and the ability to meet obligations, fund operations, and plan for future needs, regardless of reported profits.

Profits come from the income statement, which measures performance including non-cash items. Asset values appear on the balance sheet, reflecting what the company owns. Changes in shareholder equity are shown in the equity statements. In short, the cash flow statement specifically reveals cash receipts and payments.