NEED IN 12 HOURS Or LESS
The income statement, balance sheet, and statement of cash flows are three major financial statements that present varying snapshots of an organization’s financial position. In your opinion, which financial statement offers the clearest snapshot of how the organization is doing? Why?
REPLY TO MY CLASSMATE’S RESPONSE TO THE ABOVE QUESTION AND EXPLAIN WHY YOU AGREE? (A MINIMUM OF 200 WORDS EACH POST)
CLASSMATE’S POST
Of the three major financial business statements the income statement and the balance sheet are considered “traditional”, while the statement of cash flows is one that has been adapted from them. The income statement is good for giving an overall snapshot for a given period of time, with the most important component being profitability. An income statement should have separate operating income and non-operating income so that operational inefficiencies are not overlooked. The more categories that can be included on the sections of the income statement, the better the overall picture. The pitfall with relying solely on net income to determine profitability is that it doesn’t represent the actual cash that flows into and out of the business. This can be calculated using depreciation, but an even better snapshot can be obtained by using the statement of cash flows. The income statement does not give detailed information on cash flows, and the balance sheet gives a temporary short-term picture that does not provide details on why the cash amount changed. The statement of cash flows uses information provided by the income statement and the balance sheet providing more details of the actual cash flows. In addition to operating activities, investment and financing activities are included. This information is imperative to a company because it details where it gets its cash and how it was spent. I believe all three must be utilized, but the statement of cash flows provides the clearest snapshot.
