Answer (C) is correct . The primary purpose of a statement of cash flows is to provide information about the cash receipts and cash payments of a business enterprise during a period. This information helps investors, creditors, and other users to assess (1) the enterprise’s ability to generate net cash inflows; (2) its ability to meet its obligations, and pay dividends; (3) its needs for external financing; (4) the reasons for the differences between net income and net cash flow; and (5) the effects of cash and noncash financing and investing activities.
Answer (A) is incorrect because The statement of income is prepared on an accrual basis and is not meant to report cash flows.
Answer (B) is incorrect because The statement of retained earnings merely shows the reasons for changes in retained earnings during the reporting period.
Answer (D) is incorrect because The balance sheet reports on financial position at a moment in time. It does not provide information about future cash flows.
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