Final answer:
To prepare a statement of cash flows, one must consider the Income Statement, Balance Sheet, Statement of Retained Earnings, and Statement of Changes in Equity. These documents provide essential data on profitability, assets, liabilities, and changes in equity, all contributing to a comprehensive view of a company's financial health and liquidity.
Step-by-step explanation:
To prepare a statement of cash flows, several financial statements need to be considered. These include the Income Statement, Balance Sheet, Statement of Retained Earnings, and the Statement of Changes in Equity. The Income Statement provides information on the company's profitability during a specific period, which includes revenues and expenses. The Balance Sheet gives a snapshot of the company's financial position at a point in time, listing its assets, liabilities, and net worth. Here, assets minus liabilities equal the net worth, or bank capital for a bank. The Statement of Retained Earnings shows how the company's retained earnings have changed over time, while the Statement of Changes in Equity provides details on how shareholder's equity has varied during the reporting period.To ensure that a company or individual can cover all necessary expenses, it's essential to maintain a budget. This financial planning tool correlates with the various components of the statement of cash flows as maintaining sufficient cash inflow is vital for meeting expenses. As such, understanding each document's role is crucial in the accurate preparation of the cash flow statement.Banks, just like any other business, use a balance sheet that features assets such as cash in vaults or held at the Federal Reserve bank. These figures are essential for the cash flow statement as they contribute to understanding the liquidity and financial stability of the institution.In conclusion, a comprehensive understanding of all related financial statements is necessary when preparing a statement of cash flows. The main answer to the question is that the Income Statement, Balance Sheet, Statement of Retained Earnings, and Statement of Changes in Equity are integral components for this process. They all contribute vital information that affects a company's cash flow, offering insights into liquidity and financial planning.