Cash Flow Statement Quiz

What is the primary financial statement showing the movement of cash and cash equivalents over a given period?

• Statement of Changes in Equity

• Cash Flow Statement

• Balance Sheet

• Income Statement

Answer explanation

The primary financial statement showing the movement of cash and cash equivalents over a given period is the Cash Flow Statement.

Which standard regulates the cash flow statement in the international stream?

• International Accounting Standard 7 (IAS7)

• Generally Accepted Accounting Principles (GAAP)

• International Financial Reporting Standards (IFRS)

• International Standards on Auditing (ISA)

Answer explanation

The correct choice is International Accounting Standard 7 (IAS7) which regulates the cash flow statement in the international stream.

What is considered as cash equivalents?

• Long term investments

• Real estate properties

• Corporate bonds

• Treasury bills

Answer explanation

Cash equivalents are highly liquid investments with a maturity date that's so close it's considered as cash. Treasury bills fall under this category.

What is the main objective of the cash flow statement?

• To show profitability

• To predict future stock prices

• To provide information about historical changes in cash

• To calculate tax liabilities

Answer explanation

The main objective of the cash flow statement is to provide information about historical changes in cash, not to show profitability, predict future stock prices, or calculate tax liabilities.

Which activity involves cash receipts from customers for sale of goods and services?

• Investing activities

• Financing activities

• Management activities

• Operating activities

Answer explanation

Cash receipts from customers for sale of goods and services are part of operating activities, which involve the core business operations of a company.

What is the direct method in the cash flow statement?

• Provides information for future cash flow forecasts

• Depicts movement in cash equivalents

• Starts with profit before tax and adjusts it for non-cash charges and credits

• Shows all operating payments and receipts

Answer explanation

The direct method in the cash flow statement shows all operating payments and receipts, providing a detailed breakdown of cash flows from operating activities.

What does a huge cash balance in the cash flow statement indicate?

• Good management

• High profitability

• Low liquidity

• Bad management

Answer explanation

A huge cash balance in the cash flow statement indicates bad management because it suggests that the company is not effectively utilizing its cash resources.

What is a limitation of the cash flow statement?

• Depicts movement in liabilities

• Can be used in isolation to assess business performance

• Historical information is not useful

• Cannot predict future cash flows

Answer explanation

The limitation of the cash flow statement is that historical information is not useful as it does not provide insights into future cash flows.

What does the cash flow statement assist in determining?

• Historical stock prices

• Relationship between assets and liabilities

• Relationship between profitability and cash generating activities

• Future stock prices

Answer explanation

The cash flow statement helps in determining the relationship between profitability and cash generating activities.

What is the purpose of the cash flow statement within the decision-making process?

• To manipulate profitability

• To assist in future forecasting of cash flows

• To hide cash balances

• To increase tax liabilities

Answer explanation

The purpose of the cash flow statement is to assist in future forecasting of cash flows, helping in decision-making by providing insights into the organization's liquidity and ability to meet financial obligations.