Explain the purpose and the format of the statement of cash flows. Also, describe its relevance to decision-makers.

The statement of cash flows is considered a major financial statement, along with the income statement, balance sheet, and statement of stockholders equity. The statement of cash flows, however, provides much information and answers certain questions that the other three statements do not. It has replaced the statement of changes in financial position, and its presentation is required whenever an income statement is prepared.

The statement of cash flows shows the effect on cash and cash equivalents of the operating, investing, and financing activities of a company for an accounting period. Cash equivalents are short-term, highly liquid investments such as money market accounts, commercial paper (short-term notes), and U.S. Treasury bills. Short-term investments (marketable securities) are not considered cash equivalents.