The cash flow statement is needed because the income statement reports the revenues earned and the expenses incurred using the accrual method of accounting. These amounts are different from the amount of cash received and paid. Also, the company's annual income statements might report 3% of a new building's cost as depreciation expense, but the company may have paid cash for 100% of the building's cost in the year it was constructed. Since cash is critical for a company's operations and decision making, it is necessary to have the cash flow statement.
The cash flow statement is organized into four major sections: cash from operating activities, cash from investing activities, cash from financing activities, and supplemental information such as interest paid, income taxes paid, and significant noncash exchanges.
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