What are the sources of cash? Where is cash invested? This information is available from cash flow statement.
Apart from profit and loss statement and balance sheet, cash flow statement is also included as a component of financial accounts. Among all the assets of business, cash is the most liquid asset. The sources of cash, and application of cash, both are very important decisions. It is desirable to procure cash from an appropriate source as well as to invest it at the right place.
Cash flow statement provides some important information, such as the sources of cash, and where it is invested. Therefore the preparation of cash flow is mandatory for certain business enterprises. This helps the investors to make appropriate decisions.