Final answer:
A local government's statement of cash flows is part of its basic financial statement, showing cash inflows and outflows due to operating, investing, and financing activities. Budgets dictate these cash flows, but they are subject to change with policy decisions and unexpected events, impacting financial statements.
Step-by-step explanation:
The basic financial statement of a local government would typically include a statement of cash flows. This statement highlights all cash inflows and outflows, categorizing them into operating, investing, and financing activities. For a local government, the statement of cash flows is an essential part of financial reporting, as it provides a clear view of how cash is being received and spent. These flows are influenced by budgets, which consist of both expected revenues primarily from taxes and other income, and planned expenditures. However, it's important to note that these budgets can change significantly due to policy decisions and unexpected events, affecting subsequent financial statements.
Universal generalizations suggest that before any revenue can be released, state and local governments must have approved spending, ensuring fiscal responsibility. Additionally, the budgets allocated by these entities are necessary for maintaining many public services and programs that benefit the community. Understanding how these cash flows operate and how they are reported is key to comprehending the finances of state and local governments and their reliance on federal expenditures as a revenue source.