Understanding Cash Flows

Why is cash flow more critical for business survival than profit in the short term?

• Cash helps maintain liquidity and operations.

• Profit directly correlates to cash availability.

• Cash only becomes important in the long term.

• Profit and cash are always equal.

Which of the following business events affects cash flow but not profit?

• Depreciating a non-current asset.

• Making a sale on credit.

• Repayment of a loan.

• Buying inventory for cash.

Why is the statement of cash flows important in financial reporting?

• It provides insight into revenue and expenses.

• It shows the business's ability to generate cash.

• It replaces the balance sheet.

• It only highlights profit margins.

What is the main difference between cash flow from operations and profit?

• Profit includes depreciation, while cash flow does not.

• Profit and cash flow are always identical.

• Cash flow accounts for accrual-based transactions.

• Profit only reflects cash transactions.

What can cause cash flow problems even if a business is profitable?

• Over-trading and delayed customer payments.

• Making all sales on credit.

• Paying off all debts immediately.

• Expanding into new markets.

Which of these activities is classified under investing activities in the statement of cash flows?

• Payment of salaries.

• Buying a non-current asset.

• Issuing dividends.

• Receiving customer payments.

Which of the following transactions will increase cash but not affect profit?

• Depreciation of machinery.

• Cash sales to customers.

• Issuance of shares for cash.

• Credit sales to customers.

How do increases in accounts receivable affect cash flow?

• Increase cash inflows.

• Decrease cash inflows.

• No effect on cash flow.

• Increase cash outflows.

If a business has an increase in its inventory, how does this impact cash flow?

• Increases cash inflows.

• Decreases cash inflows.

• Increases cash outflows.

• No impact on cash flow.

Which section of the cash flow statement would dividends paid appear under?

• Operating activities.

• Investing activities.

• Financing activities.

• None of the above.