Tag: preparation of cash flow statement

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Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Under the direct method, which of the following items must be added to operating expenses reported on the income statement to determine cash payments for operating expenses?

  1. Increase in accrued expenses

  2. Decrease in prepaid expenses

  3. Increase in income taxes payable

  4. Increases in prepaid expenses
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Under direct method of statement of cash flow, major heads of cash inflows and outflows are considered. Certain items are recorded on accrual basis in profit and loss account.

Hence, certain adjustments are made to convert them into cash basis such as cash receipt from customers, cash payments to supplies, purchases, prepaid expenses etc. 

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Which of the following would not be on the statement of cash flows ________________.

  1. Cash flows from investing activities

  2. Cash flows from financing activities

  3. Cash flows from operating activities

  4. Cash flows from contingent activities
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The cash flow statement is a good consolidated indicator of a business's cash inflow and outflow. It breaks down these cash flows into three distinct categories: operating activities, investing activities, and financing activities. 

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Which of the following is an application of funds?

  1. Purchase of machinery.

  2. Profit earned during the year.

  3. Issue of share capital.

  4. Long term loan raised.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Fund Flow statement is prepared to show the sources and application of funds. It is prepared by incorporating the various sources through which the funds are received and the items where the funds are utilized. 


Purchase of Machinery is an application of funds.
Profit earned during the year is a source of fund
issue of share capital is a source of fund
Long term loan raised is a source of fund.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Conversion of debenture into share capital results in _________.

  1. sources of funds

  2. sources of cash

  3. application of funds

  4. no flow of fund
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Conversion of debenture through share capital does not involve any outflow of funds. 

Its only an accounting transaction where debentures are converted into shares. No funds are utilized in such case. 

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Cash outflow on account of operating activities is a/an _______________.

  1. Sources of cash

  2. Application of cash

  3. Cash and bank balances

  4. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A cash outflow represents a decrease in cash, which is an application or use of cash for business operations.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

The fixed asset of a company is double of the current assets and half of capital. If the current assets are Rs. $3,00,000$ and investment Rs. $4,00,000$ calculate the current liabilities assuming that there are no other items in the balance sheet.

  1. Rs. $2,00,000$

  2. Rs. $1,00,000$

  3. Rs. $3,00,000$

  4. Rs. $4,00,000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Which of the following is added to net profit in order to arrive the amount of funds from operation?

  1. Depreciation on machinery.

  2. Profit on sale of fixed assets.

  3. Profit of revaluation of land.

  4. Interest from investments.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Cash flow under Indirect method is calculated by adding non cash expenses like depreciation, amortization. Therefore, among the following options, depreciation is the non cash item which is added to net profit to arrive at the amount of funds from operation.

Multiple choice accountancy statement of changes in financial position preparation of cash flow statement cash flow statement finance

Operating cost includes ___________.

  1. Cost of direct materials

  2. Cost of direct labour

  3. Overhead costs

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Operating cost is the cost that is associated with the administration and maintenance of the business on day-to-day basis. It includes various costs such as cost of direct materials, direct labour, overhead costs.etc.