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CMA Intermediate · Corporate Accounting and Auditing · Cash Flow Statement

According to AS 3, why does an enterprise present cash flows by operating, investing and financing activities in a manner most appropriate to its business?

AS 3 says classification by activity provides information that lets users assess the impact of operating, investing and financing activities on the enterprise's financial position and its cash and cash equivalents. It also helps evaluate the relationships among those activities.

  1. ATo avoid disclosing the closing cash balance
  2. BTo allow users to assess the impact of those activities on financial position and on cash and cash equivalents, and evaluate relationships among themCorrect
  3. CTo ensure all cash flows are reported as operating flows
  4. DTo permit netting of financing flows against profit

Explanation

AS 3 says classification by activity gives information allowing users to assess the impact of those activities on financial position and on cash and cash equivalents, and it may be used to evaluate relationships among the activities. The other options contradict the purpose of classification.

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