Jim Shea is an accountant at King and Associates which
Jim Shea is an accountant at King and Associates, which is an accounting firm based in Halifax, Nova Scotia. The firm specializes in dealing with small business clients who generally are very successful business people but have limited accounting knowledge.
Owen Ridlow is a client and the sole owner of Ridlow Shipping Ltd. He recently called Jim with some questions about the financial statements prepared for the year ended December 31, 2016. During the conversation, Owen made the following comment: “Jim, I am wondering why I have to pay you guys to prepare a statement of cash flows. I understand the importance of the statement of financial position and the statement of income, but since I always know how much cash I have in the bank and I reconcile my bank accounts regularly, why do I need a statement of cash flows? It seems to me that paying to have this statement prepared is an unnecessary expense.”
Required:
Do you think Owen is at all justified in making this comment? Outline several points that Jim should raise in his discussion with Owen to explain the importance of the statement of cash flows and justify the need for it. Support your answer by referring to Ridlow Shipping’s most recent statement of cash flows, which follows.
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