The role of indicators statement of cash flows in evaluating the quality of earnings


It is known that the number of net profit is the bottom line of the income statement, which is prepared on an accrual basis. The debate has started on ineffectiveness of this statement since 1980, and this debate has escalated with the increasing of the bankruptcy cases of the economic units in the United States of America, where their income statements disclose high level of net income , while they were facing shortage in the liquidity ,as a result of the lack of enough money. Because of the above reason ,the need emerged to cash flow statement, which is prepared according to cash basis to decrease the misleading ,and falsifications which may occur when using different accounting ,policies and methods . Possibly the most important virtues of this statement it's ability to evaluate the earning's quality and to provide financial information not found in the balance sheet and income statement ,which we can use to determine. The ability of the economic unit to generate cash flows from the operations which enough to meet it's obligations against it's creditors and shareholders .


Axis Accounting