Which description best defines a cash flow statement?

• A. Only cash on hand.
• B. A summary of owner's equity changes.
• C. Shows cash inflows and outflows from operating, investing, and financing activities during a period.
• D. Net income and taxes.

Answer: (C)

The cash flow statement shows how cash moves in and out of the business, categorized into operating, investing, and financing activities over a specific period. This structure captures all cash receipts and payments, not just what the business earned or what cash is on hand at a moment. By detailing operating activities (cash from daily operations), investing activities (acquisitions and sales of long-term assets and investments), and financing activities (borrowing, repayments, and equity changes), it reveals the company’s liquidity and how it funds its activities. It complements the income statement and balance sheet by focusing on actual cash changes rather than accrual profits.