Final answer:
An increase of cash on a comparative balance sheet should prompt a review of the statement of cash flows, which details cash transactions by operating, investing, and financing activities.
Step-by-step explanation:
If you observe an increase of cash on a comparative balance sheet during horizontal analysis, you would want to look at the statement of cash flows for more detailed information. The statement of cash flows provides insights into the cash transactions, categorizing them into operating, investing, and financing activities. This statement helps to understand the sources and uses of cash, which complements the balance sheet information. For instance, an increase in cash could be due to improved earnings, the sale of an asset, or a new loan. A comparative balance sheet with a T-account format simplifies the viewing of changes over time.
It is important to compare the balance sheet figures with the relevant movements in the statement of cash flows to gain a full understanding of the financial situation. Analyzing the differences will provide a better picture of the company's financial health and the reasons behind the variability in cash. If you see an increase of cash in horizontal analysis on your comparative balance sheet, the financial statement you would want to take a look at for more information is the Statement of Cash Flows. The Statement of Cash Flows provides information about the cash inflows and outflows of a company during a specific period of time. It categorizes these cash flows into three sections: operating activities, investing activities, and financing activities. By reviewing the Statement of Cash Flows, you can determine the source of the increase in cash and understand how the company's cash position has changed over time.