Which document records the actual cash inflows and outflows for a business over a specified trading period, typically 12 months?

• A. Closing balance
• B. Cash flow statement
• C. Liabilities
• D. Current assets

Answer: (B)

The main idea is that this document tracks actual cash movements in and out of the business over a period, usually a year. The cash flow statement records cash receipts and cash payments, and it groups them into operating, investing, and financing activities. This makes it the best tool for judging liquidity and how well the business generates cash to fund day-to-day operations, invest, and service debt. Other terms like the closing balance (cash left at period end on the balance sheet), liabilities (amounts owed), or current assets (resources expected to be converted to cash within a year) describe amounts or classifications, not the actual flow of cash over the period. The cash flow statement also helps explain situations where profits are positive but cash flow is weak, such as cash tied up in receivables or inventory.