Florida General Contractor Practice Exam

What is the main function of a cash flow statement?

1. To show the profitability of a business

2. To report on the company’s financial position

3. To track the flow of cash in and out of a business

4. To reflect changes in equity over time

The correct answer is: To track the flow of cash in and out of a business

The main function of a cash flow statement is to track the flow of cash in and out of a business. This financial statement provides a detailed analysis of how cash is generated and used during a specific period, helping stakeholders understand the company's liquidity and financial health. It categorizes cash flows into operations, investing, and financing activities, which gives insight into how well a company manages its cash position. By focusing on actual cash movements rather than accounting profitability or financial position, the cash flow statement helps assess a company's ability to generate cash to fund operations, pay debts, and support growth. This is crucial for financial decision-making, as it allows both management and investors to evaluate the company's short-term viability without being misled by non-cash accounting metrics.