Ben Jones would like to expand his small printing business to include a new computerized colour printing system. To finance the purchase of this equipment, Ben has applied for a loan from a government venture capital agency. The agency requires a complete set of financial statements before it can approve any loan application, and assigns an employee to each applicant to help prepare the necessary financial statements.
You have been assigned to assist Ben with his application, and he has provided you with a statement of earnings and a statement of financial position for his business. You explain to Ben that a complete set of financial statements includes a statement of cash flows, and that one will have to be prepared for his company before the loan application can be processed. Ben does not understand the purpose of the statement of cash flows and what types of information he will have to gather in order to have one prepared for his business.
Required:
Prepare a brief memo to Ben explaining the purpose and structure of the statement of cash flows and outlining any additional information, beyond the statement of earnings and statement of financial position that he will have to provide to enable you to prepare a statement of cash flows for his business.