Tag: preparation of cash flow statement

Questions Related to preparation of cash flow statement

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?

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

  1. Increase in accrued expenses

  2. Decrease in prepaid expenses

  3. Increase in income taxes payable

  4. Increases in prepaid expenses

Show answer
Correct Option: D
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. 

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

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

  1. Cash flows from investing activities

  2. Cash flows from financing activities

  3. Cash flows from operating activities

  4. Cash flows from contingent activities

Show answer
Correct Option: D
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. 

Which of the following is an application of funds?

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

  1. Purchase of machinery.

  2. Profit earned during the year.

  3. Issue of share capital.

  4. Long term loan raised.

Show answer
Correct Option: A
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.

Cash inflow from operating activities is a/an _____________.

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

  1. Source of cash

  2. Application of cash

  3. Cash and bank balance

  4. None of these

Show answer
Correct Option: A

Conversion of debenture into share capital results in _________.

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

  1. sources of funds

  2. sources of cash

  3. application of funds

  4. no flow of fund

Show answer
Correct Option: D
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. 

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

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

  1. Sources of cash

  2. Application of cash

  3. Cash and bank balances

  4. None of these

Show answer
Correct Option: B

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.

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

  1. Rs. $2,00,000$

  2. Rs. $1,00,000$

  3. Rs. $3,00,000$

  4. Rs. $4,00,000$

Show answer
Correct Option: B

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

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

  1. Depreciation on machinery.

  2. Profit on sale of fixed assets.

  3. Profit of revaluation of land.

  4. Interest from investments.

Show answer
Correct Option: A
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.

Operating cost includes ___________.

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

  1. Cost of direct materials

  2. Cost of direct labour

  3. Overhead costs

  4. All of the above

Show answer
Correct Option: D
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.

Sale of investments indicate __________.

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

  1. Source of funds

  2. Applications of funds

  3. Change in current assets

  4. None of the above

Show answer
Correct Option: A
Explanation:

Source of funds results in the generation of cash for the company. Sale of investments results in the generation of cash which is regarded as source of funds.