What is the primary purpose of the statement of cash flows?

The primary purpose of the statement of cash flows is to show the cash inflows and outflows over a period. This financial statement provides crucial information about a company’s liquidity and overall cash management. By categorizing cash flows into operating, investing, and financing activities, it helps stakeholders understand how the company generates and uses its cash.

For example, operating cash flows indicate how well the company can sustain its operations from net income, while investing cash flows provide insights into expansion or capital expenditures. Financing cash flows reveal how money is raised (through debt or equity) and how it is returned to investors. This information is vital for users of financial statements, like investors and creditors, as it reflects the company’s ability to generate cash in the future and meet its obligations.

The other options focus on different aspects of financial reporting. For instance, a statement that shows the company’s financial position at a specific date relates to the balance sheet, which reflects assets, liabilities, and equity at a particular moment. Reporting profitability over a period pertains to the income statement, focusing on revenues and expenses. Summarizing changes in equity from transactions usually refers to the statement of changes in equity, which captures variations in owners' equity. Each of these documents serves a unique purpose