Cash flow statement is additional information to user of financial statements. A cash flow statement displays the flow of incoming and outgoing cash in entity. It is one of the tools for assessing the liquidity and solvency of the enterprise.
Before going to brief discussion on cash flow statement, let us know about profit and loss account if you give a trial balance to ten different people and ask them to arrive profits then you will get ten different answers because of different assumptions, but in case of cash flow the ten answers will be same as we considering with only cash items unless non-cash items as in profit and loss account. Profit is an accounting concept. Profit is derived on accrual assumption. Profit and cash flow from operating activities are not the same. Cash flow statement is an important tool for making several management decisions such as declaration of dividend and investments.