What is the primary purpose of cash flow statements?

The primary purpose of cash flow statements is to show the amount of money coming in and going out of a company. This financial statement provides insight into the liquidity, solvency, and financial flexibility of an organization. By tracking cash inflows and outflows over a specific period, the cash flow statement allows stakeholders to analyze how well the company generates cash to meet its obligations and fund its operations.

This emphasis on cash transactions is essential because it reflects the company's ability to maintain operations, pay creditors, and invest in future growth. Unlike other financial statements that may rely on accounting principles, the cash flow statement presents a clear picture of cash management and financial health, which is crucial for both management and investors.

While other options, such as summarizing assets and liabilities or establishing profit, are important facets of financial reporting, they do not encapsulate the specific focus of cash flow statements, which is strictly concerned with cash movement.