What is the primary purpose of the Statement of Cash Flows?

The primary purpose of the Statement of Cash Flows is to summarize the effects of cash on the organization’s operating, investing, and financing activities. This financial statement provides insight into how cash is generated and used within these three key areas, enabling stakeholders to understand the liquidity and overall financial health of the organization.

By detailing cash inflows and outflows from operating activities, the statement illustrates the cash that is generated or consumed by the core operations of the business. It also highlights cash transactions related to investments in assets or the acquisition of new businesses, as well as financing activities such as loans, shareholder equity changes, and other capital transactions. This comprehensive view is essential for stakeholders, as it reflects the organization's ability to generate cash and manage its cash resources effectively, which is crucial for sustaining operations and funding future growth.

In contrast, reports summarizing total revenue or focusing solely on operating income do not provide the full picture of cash flows and liquidity. While non-operating expenses may be relevant to understand the overall profitability of the organization, they are not the primary concern of the Statement of Cash Flows, which is focused specifically on actual cash movements.