This report will explain to you the reason behind the inability to give dividends to our respected shareholders even with a net income of $5. This is because there has been no cash generated from the operating activities; instead we need more cash to pay for the expenses. The following cash flow statements will make this clear.
The above statements show negative net cash flows therefore, the company does not have the cash to pay dividends to the shareholders. The positive net income despite negative net cash flows was possible because most of the revenue was in the accrued form. The cash has not yet been received in hand but will be received in the near future. But the income statement includes the whole amount of the revenue whether received or not. Therefore, there is a discrepancy in the profitability and cash flows of the company.
I hope this report has solved all your queries that due to this shortage of cash we cannot pay dividends to shareholders this time.
Weygandt, Kieso, Kimmel (2007).
The importance of cash the cash flow statement help businesses and creditors understand how liquid a company is. Team A discussed some important factors about the statement of cash flow. The purpose of the statement of cash flow and how it is used in accounting is explained. The direct and indirect method of preparing a statement is used. Steps in preparation and classification are explained. The ...
Accounting principles. 8th ed. Wiley. 728-754.