Tag: preparation of cash flow statement

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

Which of the following is the limitation of the cash flow statement?

  1. Historical in nature.

  2. Discloses Success or Failure of Cash Planning.

  3. Reasons for Cash positions.

  4. Comparative study.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A cash flow statement is based on past data (historical), which means it does not necessarily reflect the future cash position or current financial health, making it historical in nature.

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

Short-term Investments and Marketable Securities are included in Cash and Cash Equivalent.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to accounting standards, cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

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

Cash Flow Statement helps in understanding liquidity and solvency.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The cash flow statement provides information about the cash generated and used by an enterprise, which is essential for assessing its liquidity (ability to pay short-term debts) and solvency (ability to meet long-term obligations).

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

Cash Flow Statement does not disclose the ________ .

  1. cash inflow

  2. cash outflow

  3. financial position

  4. none of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A cash flow statement only reports the movement of cash. It does not provide a comprehensive view of the overall financial position (assets, liabilities, and equity), which is the purpose of the balance sheet.

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

Investing Activities are the acquisition and disposal of long-term assets and other investments included in cash equivalents.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Investing activities involve the acquisition and disposal of long-term assets. Cash equivalents are specifically excluded from investing activities as they are part of the cash balance itself.

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

Operating activities are the principal revenue producing activities of the enterprise and other activities that are not investing or financing activities.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Operating activities are defined as the principal revenue-producing activities of the entity and other activities that are not investing or financing activities.

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

Which of the following is not the objective of cash flow statement?

  1. To show cash and cash equivalent generated.

  2. To show cash and cash equivalent used.

  3. To show net changes in cash and cash equivalents.

  4. None of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The main objective of preparing cash flow statement for a particular accounting period is to present information regarding inflow and outflow of cash, cash and cash equivalent generated , used, and net changes in cash flows.

Besides,

It presents the investment and financial activities of a concern for a particular period. It also fulfills the following objectives;

  • Ensuring future positive cash flow of particular concern.
  • Ensuring capacity of an organization to pay a dividend.
  • Identifying non-cash items ensuring cash income and expenses of a concern.
  • Comparing various items of the current year with those of last year.

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

Which of the following is not the limitation of cash flow statement?

  1. Non-cash Trasactions are not reported.

  2. Not a substitute for Income Statement.

  3. Not a sustitute for Balance sheet.

  4. Comparative study.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Comparative study is an analytical tool used to interpret financial statements; it is not a limitation of the cash flow statement itself.