Toward Student Development Of A Better Understanding Of The Cash Flow Statement

Abstract

FASB Statement No. 95, Statement of Cash Flows has now been in existence for more than ten years (since 1988) and yet, there still has not been any consensus about how to effectively evaluate information provided from this statement. Accounting educators should be the primary personnel for disseminating the necessary information for understanding the cash flow statement as well as for providing the analytical tools for evaluating the cash flow information. Carslaw and Mills (1992) provided a preliminary study that examined the intermediate textbooks to determine what the authors were providing in terms of analytical tools for evaluating cash flow information. The study concluded that while all the textbook authors point out that the cash flow statement should be used to evaluate liquidity and financial flexibility, none provided analytical tools for evaluation. The Carslaw and Mills article then provided a series of suggested ratios that they felt might provide a foundation for analyzing cash flow information. This paper is a follow-up of the prior study. We reviewed the information in the current intermediate accounting texts that provides a basis for the evaluation of the cash flow statement. Our conclusion is that, while some authors have attempted to provide better measures of cash flow information, ten years later, there is still no common consensus among authors on providing the necessary tools for properly analyzing cash flow information.