Question

Explain whether the Statement of Cash Flows is able to illustrate the ‘liquidity’ of an entity to its users and provide ONE recommendation how companies can maintain liquidity during this pandemic.

Answer 1

Answer:

A cash flow is an important part of an organisation. it helps in understanding the cash flows from investing, operating and financial activities.

A cash flow statement helps in evaluating the liquidity of a company.

During the current Pandemic, maintaining liquidity is very important.

some business functions freezes. such firm will experience cash operating cots. the firm should have enough cash to maintain the business in moving forward.

Explanation:

Solution

A cash flow statement is a vital parts or components provided by an organisation.i t helps in interpreting the cash flows from investing, operating and financial activities or functions.

An organisation income statement is made ready based on the accrual basis and so it does help or aid in the understanding the movement of cash during.

A cash flow statement helps in evaluating the liquidity of a company.

Operating activities of cash flows is computed or estimated by putting Non cash expense to net income and then deducting current liabilities and assets.

Cash flow from operating activities are necessary to the firm because it helps  in providing  cash to invest assets and payback of debt.

Maintaining liquidity during the present pandemic has become very necessary.

Since business functions  freezes, the firm will experience cash operating cots. hence the firm should have sufficient cash to maintain the business running.

The firm can also take a loo at their current assets to see if it can be converted to cash on quickly basis.