Which statement about cash flow statements is accurate?

The accurate statement about cash flow statements is that they provide insight into a company’s cash inflows and outflows over time. Cash flow statements are essential financial documents that detail the actual cash generated and used during a specific period. They reflect how well a company manages its cash position, showing where cash is coming from (operating activities, investing activities, and financing activities) and where it is going.

This information is critical for assessing the liquidity, flexibility, and overall financial health of a business. Investors, creditors, and management use cash flow statements to make informed decisions because they highlight the company’s ability to generate cash to fund operations, pay debts, and support growth. Such transparency is vital for stakeholders who need to understand how effectively the company can manage its operational cash—not just its profitability, which can sometimes be misleading if relying solely on profit and loss statements.

In contrast, the other statements do not accurately represent the purpose or function of cash flow statements as they relate to the broader context of financial reporting.