a) Functions or uses of the cash flow statement:

* Provides a clear picture of an aspect of the entity’s performance and position that is not so clear in reviewing the P/L and B/S. ie * viability of core operations * payments to suppliers, creditors * collections on debtors * dividends, interest and other payments * payments for NC assets * access to cash, likely access in the future

* profit does not equal cash, so adds another aspect to the information we can obtain about an entity * generally, users have an interest in cash flow performance, as this generally gives some indication of expected return (ie. dividends) * the importance of cash for survival is known, hence the CFS gives some indication of the future prospects for the firm * CFS gives some indication of the firm’s command over economic resources and how that command was exercised * Helps management to discharge its accountability function, by indicating how it has used the cash under its control.

b) reasons for the reconciliation: * profit does not equal cash flow, hence the information content of the reconciliation * provides an explanation of some *(non-cash) aspects of profit such as: impact of depreciation, credit sales etc, * cash may be the ‘lifeblood’ of the company, but CFS should supplement, not substitute for the P/L. * May, to some extent assist users to understand that there is a relationship between profit and cash from operations – and demonstration of this would seem essential, since most can relate to cash, but less can relate to profit.

c) Cash is more important… * Covered somewhat in the comments above. * Yes, cash is the lifeblood of the company, but this is not to say the cash flow statement is necessarily the most important statement. Rather, each statement provides a different