Tag: budgeting

Questions Related to budgeting

The term 'Cash' stands for__________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Cash and Bank Balance

  2. Bank Balance

  3. Cash and Funds position

  4. None of the above

Show answer
Correct Option: A
Explanation:

Cash is a legal tender or coins that can be used to exchange goods,debt or services. 

Cash refers to money in hand,money in banking accounts, cheques, or any other form of currency that is easily accessible and can be quickly turned into physical cash.

Which of the following items would be specifically included in the statement of cash flows constructed in compliance with $AS-3$?

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Conversion of debt to equity

  2. Acquiring an asset through lease

  3. Operating and non-operating cash flow information

  4. Purchasing a building by given a mortgage to the seller

Show answer
Correct Option: C
Explanation:

Operating and non-operating cash flow are inflows and outflows of cash that are related or not related to the day-to-day, ongoing operations of a business. These non operating cash flows are associated with cash flows from investing and cash flows from financing on a company's statement of cash flows.

Cash Flow Management involves.
i) Lock-box system
ii) Marketable securities
iii) Playing the float
iv) Concentration Bank Account

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. I, II and III only

  2. II, III and IV only

  3. I, III and IV only

  4. I, II and IV only

Show answer
Correct Option: C
Explanation:
  • A lockbox is a bank-operated mailing address to which a company directs its customers to send their payments. The bank opens the incoming mail, deposits all received funds in the company's bank account, and scans the payments and any remittance information.
  • In cash management, float can be utilized to make use of cash on hand for as long as possible. Bank float is the time it takes to clear the funds, from the time they were deposited to the time they were credited to the depositing bank.
  • Cash Concentration is a corporate treasury management strategy involving the transfer of all funds from different accounts to a single, centralized account to increase cash management efficiency and reduce fees. 

Which of the following statement are false?
a. Old furniture written off doesn't affect cash flow.
b. Cash flow statement is a substitute for cash account.
c. Appropriation of retained earnings is not shown in cash flow statement.
d. Net cash flow during a period can never be negative.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. A, B and C

  2. B, C and D

  3. C, D and A

  4. None of the above

Show answer
Correct Option: B
Explanation:

Statement of cash flows, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, financing activities. 

Cash flow statement is based upon ______________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Cash basis of accounting.

  2. Accrual basis of accounting.

  3. Credit basis of accounting.

  4. None of the above.

Show answer
Correct Option: A
Explanation:

Cash flow is calculated by making certain adjustments to net income by adding or subtracting differences in revenue, expenses and credit transactions resulting from transactions that occur from one period to the next.  These adjustments are made because non-cash items are calculated into net income and total assets and liabilities. 

So, because not all transactions involve actual cash items, many items have to be reevaluated when calculating cash flow from operations.  

Which of the following statement is true?
a. Cash flow reveals only the inflow of cash.
b. Cash flow reveals only the outflow of cash.
c. Cash flow is a substitute for income statement.
d. Cash flow statement is not a replacement of funds flow statement.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Only (a)

  2. Only (b)

  3. Only (b) and (c)

  4. Only (d)

Show answer
Correct Option: D
Explanation:

AS-3, issued by the ICAI in June 1981, which dealt with a statement showing 'changes in financial position' (Fund Flow Statement), has been revised and now deals with the preparations of cash flow statement. The revised AS-3 has made it mandatory for all listed companies to prepare and present a cash flow statement along with other financial statements on annual basis, Hence, it may be noted that fund flow statement is no more considered relevant in accounting and so not discussed.  

Which of the following statement is false?
a. Cash flow statement is helpful in the formation of policies.
b. Cash flow statement is useful for external analysis.
c. Cash flow statement is helpful in estimating future cash flow.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Both (a) and (b)

  2. Both (a) and (c)

  3. Both (b) and (c)

  4. None of the above

Show answer
Correct Option: D
Explanation:

Cash flow statement helps users to assess the impact of the activities on the financial position of an enterprise and so on its cash and cash  equivalents.

The objective of Cash Flow Statement are:
a. Analysis of cash position;
b. Short-term cash planning;

c. Evaluation of liquidity;
d. Comparison of operating performance;

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Both (a) and (b)

  2. Both (a) and (c)

  3. Both (b) and (d)

  4. All of the above

Show answer
Correct Option: D
Explanation:

A cash flow statement shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period. 


The primary objective of cash flow statement is to provide useful information about cash flows of an enterprise during a particular period under various heads, i.e. operating, investing and financing activities.

As per AS-3, Cash flow statement is mandatory for:
a. All enterprises.
b. Companies listed on stock exchange.
c. Companies with turnover of more than Rs. 50 crores.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Both (a) and (b)

  2. Both (a) and (c)

  3. Both (c) and (b)

  4. All of the above

Show answer
Correct Option: C
Explanation:

A private limited company with paid up share capital of less than 50 lakh rupees or such higher amount as may be prescribed (not exceeding 5 crore rupees) or with a turnover of less than 2 crore rupees or such higher amount as may be prescribed (not exceeding 20 crore rupees) is not required to prepare cash flow statements while preparing financial statements at the end of the financial year.


On an accounting statement of cash flows an "increases(decrease) in cash and cash equivalent" appears as ________________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. A cash flow from operating activities

  2. A cash flow from investing activities

  3. A cash flow from financing activities

  4. None of the above

Show answer
Correct Option: D
Explanation:

Cash and cash equivalent are the amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kind of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they presents insignificant risk of changes in value because of changes in interest rates.