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Accounting for Non-Accountants, 10th Edition by David Horner

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17

Statement of cash flows

Introduction

The income statement provides information relating to the overall success of the business in the form of the profit earned. However, earning a profit does not guarantee business survival. Firms are known to have failed not because they were loss-making but because they did not have adequate cash flow available for the business to continue trading. There have been cases where a firm has appeared profitable but the increases in the profits were found to be due to creative window dressing of the firm’s financial statements. For example, changing depreciation policy by extending the lifespan of non-current assets will reduce the depreciation charge in that year’s income statement and, all other things being ...

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