Final answer:
The statement of cash flows reports on operating, investing, and financing activities, not capital activities, making the student's statement False. This financial statement helps stakeholders understand a company's liquidity and overall financial health.
Step-by-step explanation:
The statement of cash flows is a crucial financial report that companies use to provide a summary of cash inflows and outflows over a specific period of time. The statement categorizes these cash flows into three main activities: operating activities, investing activities, and financing activities. To answer the student's question, the statement that the statement of cash flows reports cash flows from operating, investing, and capital activities is False. Instead of capital activities, the third category is financing activities.
Operating activities include transactions related to the business's primary operations, such as the sale of goods or services. Cash flows here typically involve the receipts from sales, cash paid to suppliers and employees, and other operating expenses. Investing activities involve the acquisition and disposal of long-term assets and investments, which may include purchasing or selling property and equipment or securities. Lastly, financing activities pertain to transactions that affect the company's capital structure. This may include issuing and repaying debt, equity transactions, and paying dividends. Understanding the statement of cash flows is fundamental for stakeholders as it provides insights into a company's liquidity, financial health, and its ability to generate cash to fund operations and grow its business. Students studying accounting or finance should become familiar with how to prepare and analyze this important financial document.