Statement of cash flows or simply cash flow statement is a financial statement reporting entity’s cash inflows and outflows over a range of period which is either annual, quarter, month or any other length of period.
Every entity is required to prepare statement of cash flows as part of complete set of financial statements as per the requirements of International Accounting Standard 7 – Statement of Cash Flows.
Cash flow statement is mandatory because entity’s Income Statement reports revenue and cost on accrual basis, therefore if users intend to know how entity’s cash and cash equivalents have moved over the period then income statement will not be of great help.
Therefore, statement of cash flows provide detailed analysis of cash inflows and outflows as a result of business activities. In cash flow statements business activities are broadly categorized in three i.e. operating activities, investing activities and financing activities. Such categorization helps users of financial information understand how cash resources are utilized and under what activity cash is generated.