Your friend, Mira Filzah, recently completed the second year of her business operation and just received annual financial statements from her accountant. Mira finds the income statement and statement of financial position
are informative but she does not understand the statement of cash flows. She says the first section which is cash
flows from operations is confusing because it contains a lot of additions and subtractions that do not make
sense to her. Mira adds, "The income statement tells me the business is more profitable than last year and that's
the most important. If I want to know how cash changes, I can look at comparative statements of financial
position".
Required:
Write a half-page memorandum to your friend explaining the purpose of the statement of cash flows. Explain
why cash flow from operation is so confusing and suggest how it might be rectified.
(10 mare)