In the Process of making the Cashflow statement:

The numbers in cash flow statement are derived from changes in balance sheet, if you don't have two different periods of balance sheet, how you will understand which is decrease or increase.

A Cash Flow Statement or a Statement of Cash Flows is a major financial statement used to track the flow of working capital into and out of a business during an accounting period.

However, the statement of cash flows is based on cash flows only, and thus adjustments must be made to convert accrual basis information to a cash basis.  Several pieces of information are required to make these adjustments in preparing the statement of cash flows:

Balance sheets for the end of last year and end of the current year are needed to calculate the amount of change in each balance sheet account. These changes in balance sheet accounts are needed to prepare certain parts of the statement of cash flows.

Income statement information for the current year is needed as the starting point for converting net income from an accrual basis to a cash basis, which is shown in the operating activities section of the statement of cash flows.

Other information is needed to complete the statement of cash flows, such as cash dividends paid and the original cost of long-term investments sold.

In the process of cash flow statement controlled with resource of fund used for their acquisition and statement of income and expenses showing profit earned or loss incurred. We can't do it until the reason is that due to use of accural basic of accounting recognization of financial elements. For example assets, liabilities, expenses, income and equity which they relates rather than with cash receipts or payment.

Cash flow statement is a financial statement which shows how changes in balance sheet and income statement affects cash and cash equivalents.  Hence, obviously, we would need two balance sheets to furnish the changes. 

Cash flow statements show the liquidity of the company and also the cash in/out with respect to operating,financial and investing activity to do so we need balance sheet of two periods to compare along with all other details. 

It is simple. We need opening & closing balances of the assets, liabilities and equity to work out the changes that have occurred during the specific period to arrive at the liquidity position of the entity. 

Statement of Cash Flows on a specific date (most of the time balance sheet date) are prepared to support increase or decrease in cash and cash equivalents. This statement shows the reasons behind the increase or decrease in cash and cash equivalents. 

 

As we need to know the difference (increase / decrease) in cash and cash equivalents from last year's balance sheet and current year balance sheet, we need these balance sheets. Further we should have income statement for the current year to prepare cash flow statement.

 

Therefore, three documents / statements are essentialy required to produce Cash Flow Statement 1) Balance Sheet - Last Year 2) Balance Sheet - Current Year 3) Income Statement - Current Year.

Simple is that if you don't have two value how you will find out the difference to treat them in cash flow statement?. For example you can't calculate the difference if you don't have opening and closing balances of Accounts Receivable  for example that you can find out from current and previous balance sheet. 

 

In the Process of making the Cash flow Statement...?

Ans: Cash flow statement is a statement which disclose the liquidity position of organisation in terms of cash available for the period to meet the short term planning. It helps to know the requirement of cash for meeting the various activity of organisation with disclosing the inflow of cash from various sources.

Therefore, the Cash flow statement is prepared for the organisation with disclosing inflow & outflow of Cash. The Cash flow is prepared based on various activity of organisation. Thus, cash flow prepared for various activity. The main activity has been classified in following categories:

i) Operating Activity

ii) Investing Activity

iii) Financing Activity

The Cash flow prepared based on above activity with nature of business/ activity of organisation. The each activity having Inflow & Outflow of cash as per requirement of funds.

Such as; while preparing the practical cash flow of statement for an organisation then we need to keep in mind different application & sources of cash for payment expenses, supplier payment, buying asset & selling of asset, issue of share , financing from various sources etc.

i) The main activity is Operating Activity which is discloses various receipt including Cash sales, receipt from various services, collection from Debtors, Interest from various investment & Payment towards the activity of Business in revenue nature, payment to supplier & commission etc to others. This is the most important for the business point fo view.

ii) Investing activity: This is the part of Cash flow which encourage to invest fior buying & selling fixed asset. It helps to invest the surplus cash or future assets for organisation

iii) Financing Activity is the activity which helps to avail the cash by issuing share, debenture or from financial institution for organisation and keeps the provision to pay in return as interest, dividend.

 

In process of Cash flow statement we need the cash position of two different period & the closing balance of previous year cash is consider as Opening balance of cash as Inflow of cash. Which is called changes of financial position of two different period.

Thanks for invitation, please refer Imran Noor answer.

That is because Cash flow statements needs two different Cash balances, One of them is the ending balance of cash, to start with it  in the Cash flow Statement . This can be obtained from the previous Balance Sheet 

 

The other needed cash balance that will be needed which is the balance appear at the end of the cash-flow statement, This will be matched with  the same appears in the current balance sheet to see if they are the same number.