Which of the following statements is CORRECT?
a. The statement of cash flows reflects cash flows from operations, but it does not reflect
the effects of buying or selling fixed assets.
b. The statement of cash flows shows where the firm’s cash is located; indeed, it provides a
listing of all banks and brokerage houses where cash is on deposit.
c. The statement of cash flows reflects cash flows from continuing operations, but it does
not reflect the effects of changes in working capital.
d. The statement of cash flows reflects cash flows from operations and from borrowings, but
it does not reflect cash obtained by selling new common stock.
e. The statement of cash flows shows how much the firm’s cash--the total of currency, bank
deposits, and short-term liquid securities (or cash equivalents)--increased or decreased
during a given year.
Correct answer is E. The cash flow statement records the company's cash transactions (the inflows and outflows) during the given period. It shows whether all those revenues booked on the income statement have actually been collected. While looking at a cash flow statement, the first thing should be looked at is the bottom line item that says something like "net increase/decrease in cash and cash equivalents", since this line reports the overall change in the company's cash and its equivalents (the assets that can be immediately converted into cash) over the last period.