Jim Shea is an accountant at King and Associates, which is an accounting firm based in Halifax, Nova Scotia. The firm specializes in dealing with small business clients who generally are very successful business people but have limited accounting knowledge.
Owen Ridlow is a client and the sole owner of Ridlow Shipping Ltd. He recently called Jim with some questions about the financial statements prepared for the year ended December 31, 2016. During the conversation, Owen made the following comment: €œJim, I am wondering why I have to pay you guys to prepare a statement of cash flows. I understand the importance of the statement of financial position and the statement of income, but since I always know how much cash I have in the bank and I reconcile my bank accounts regularly, why do I need a statement of cash flows? It seems to me that paying to have this statement prepared is an unnecessary expense.€

Required:
Do you think Owen is at all justified in making this comment? Outline several points that Jim should raise in his discussion with Owen to explain the importance of the statement of cash flows and justify the need for it. Support your answer by referring to Ridlow Shipping€™s most recent statement of cash flows, which follows.

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RIDLOW SHIPPING LTD Statement of Cash Flows As of December 31 2016 2015 Operating activities: Net income $206,250 $254,500 Add back items not representing cash flows 40,000 50,000 Loss on sale of investments 6,000 2,000 Adjustment for working capital items: Decrease (increase) in accounts receivable Increase in inventory Decrease in prepaid rent Increase [decrease) in accounts payable Net cash provided by operating activities (40,000) (5,000) 16,000 (2,000) 500 (28,000) 293,000 750 45,000 253,000 Financing activities: Repayment of bonds Issuance of shares Payment of dividends Net cash consumed by financing activities (100,000) 50,000 175,000) (125,000) (75,000) (75,000) Investing activities: 20,000 (197,000) (177,000) 41,000 9,000 S 50,000 Sale of investments Purchase of capital assets Net cash consumed by investing activities 50,000 215,000) (165,000) (37,000) 50,000 $ 13,000 Overall increase (decrease) in cash during year Cash balance at beginning of year Cash balance at end of year