Limitations of Cash Flow Statement
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| Limitation of Cash Flow Statement |
1. The meaning of the word ‘cash’ is
not clearly and precisely expressed. Also, the cash balance of a firm is too
easily influenced by postponing cash receipts and cash payments.
2. Since cash is a part of the
working capital, the statement does not show changes in working capital at a
glance.
3. Cash flow statement does not
reflect cash flows where accrued income and expenses are involved.
4. There may be a wide difference
between the net profit and cash from operation, since a number of ‘non-cash’
items would affect the net profit of an enterprise. This might create confusion
in the minds of the readers.
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