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(GAAP allows preparation of financial statements on accrual basis only and not on cash basis) is this statement correct or not.. if yes then statement of cash flow is also Financial statement then why we use cash base of accounting for cash flow statement.
SOFP and Statememt of Profit or Loss must be on the accruals basis.
The Statement of Cash Flow is on a cash basis because that is what it is: a cash flow statememt.
Wheras the accruals basis gives the best measure of profit because it matches income and expenditure on a time basis, businesses go out of business because they run out of cash. The profit figure does not capture cash flows accurately. For example, capital expenditure or dividends can devastate cash, but not impact on profit. The statement of cash flow is the documemt that highlights cssh.
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