Which statement describes the cash flow statement?

• A. It lists assets and liabilities.
• B. It shows only revenue.
• C. It analyzes how cash inflows and outflows affect liquidity.
• D. It forecasts future stock prices.

Answer: (C)

The cash flow statement shows how cash moves in and out of a business and what that means for liquidity. It organizes cash inflows and outflows into three activities—operating, investing, and financing—and reveals the net change in cash over the period and the ending cash balance. This focuses on actual cash activity and how it affects the company’s ability to meet short-term obligations, fund operations, and support growth, which is precisely what liquidity measures. The other statements serve different purposes: the balance sheet lists assets and liabilities, the income statement highlights revenue and expenses, and forecasting stock prices isn’t part of cash flow analysis.