What is a Cash flow statement?
A Cash Flow Statement shows the inflows and outflows of cash and cash equivalents of an enterprise over a period of time. It serves as a tool for users to know about the sources and uses of cash from various activities.
The activities contributing to the change in cash position are classified into operating, investing, and financing activities. Indian companies prepare this statement according to AS-3 notified under the Companies Act 2013. This statement is important as it helps in ascertaining the liquidity of an enterprise. It enables users to evaluate changes in net assets and the ability to generate cash, thereby enhancing the comparability of operating performance.
Explanation
The answer is derived directly from the textbook context which defines the Cash Flow Statement as a statement showing inflows and outflows. It highlights the classification of activities (operating, investing, financing) and the regulatory requirement (AS-3). The significance regarding liquidity and comparability is also mentioned in the provided text.