Running out of cash can cause default and bankruptcy and is a major headache for financial managers. The financial statements can give a view of where the money came from and where the money went throughout the past year. The source and use of cash statement is prepared by looking at consecutive year balance sheets and the last year's income statement. Notice that from the income statement we only need net income and depreciation. Depreciation is a source of funds because income is a source and the accountant subtracted depreciation to get net income.
Depreciation is a non-cash expense so the accountant made a mistake, in a financial sense.
The statement of cash flows merely takes the information gathered above in the sources and uses statement and uses them to reconcile the change in the cash account from the beginning of the year to the end of the year. Further, this statement classifies the cash flows according to operating activities, long term investing activities, and financing activities. It is like a quick replay of all of the financial manager's cash activities for the year. You only really understand these Cash flow statements when you can look at each item in the cells and by observing whether it is positive or negative describe in words what must have happened in the business to cause it. You may be able to discover facts and trends about the risk and profitability of a company and also something about the quality and efficiency of the management by examining the financial statements.