CASH FLOW MCQS WITH ANSWERS

 1.What is the primary purpose of a cash 

flow statement?

a) To calculate net income

b) To report changes in cash and cash equivalents

c) To calculate depreciation expenses

d) To assess the company's profitability

Answer: b) To report changes in cash and cash equivalents

2.Which section of the cash flow statement includes activities related to buying and selling investments?

a) Operating activities

b) Investing activities

c) Financing activities

d) Cash equivalents activities

Answer: b) Investing activities

3.When preparing a cash flow statement, interest received from loans is classified as:

a) Operating activity

b) Investing activity

c) Financing activity

d) Non-cash transaction

Answer: a) Operating activity

4.Which of the following is an example of a cash outflow in the financing activities section of a cash flow statement?

a) Sale of equipment

b) Borrowing money from a bank

c) Payment of dividends to shareholders

d) Purchase of inventory

Answer: c) Payment of dividends to shareholders

5.Which accounting method is commonly used for preparing the cash flow statement?

a) Accrual basis

b) LIFO method

c) FIFO method

d) Double-entry accounting

Answer: a) Accrual basis

6.Which of the following is NOT typically included in the operating activities section of a cash flow statement?

a) Payment of interest on loans

b) Sale of merchandise

c) Payment of income taxes

d) Purchase of long-term investments

Answer: d) Purchase of long-term investments

7.If a company receives cash from issuing new shares of common stock, how is it classified in the cash flow statement?

a) Operating activity

b) Investing activity

c) Financing activity

d) Non-operating activity

Answer: c) Financing activity

8.Which financial statement provides information about a company's cash flow for a specific period?

a) Income statement

b) Balance sheet

c) Statement of retained earnings

d) Cash flow statement

Answer: d) Cash flow statement

9.When preparing a cash flow statement, depreciation expenses are:

a) Added back to net income

b) Subtracted from net income

c) Included in the investing activities section

d) Not considered in the statement

Answer: a) Added back to net income

10.What is the formula to calculate cash flow from operating activities using the indirect method?

a) Net Income + Depreciation + Changes in Working Capital

b) Net Income - Depreciation - Changes in Working Capital

c) Net Income + Depreciation - Changes in Working Capital

d) Net Income - Depreciation + Changes in Working Capital

Answer: a) Net Income + Depreciation + Changes in Working Capital

11.When preparing a cash flow statement using the direct method, which of the following items is subtracted from cash collected from customers?

a) Cash paid to suppliers

b) Cash paid for interest

c) Cash paid for income taxes

d) Cash received from the sale of equipment

Answer: a) Cash paid to suppliers

12.Which section of the cash flow statement includes cash transactions related to obtaining resources from owners and providing them with a return on their investment?

a) Operating activities

b) Investing activities

c) Financing activities

d) Non-cash activities

Answer: c) Financing activities

13.If a company borrows money from a bank and receives cash, how is this transaction classified in the cash flow statement?

a) Operating activity

b) Investing activity

c) Financing activity

d) Non-operating activity

Answer: c) Financing activity

14.Which of the following is an example of a non-cash activity that should be disclosed in the cash flow statement's supplemental information?

a) Payment of dividends to shareholders

b) Sale of land for cash

c) Conversion of bonds into common stock

d) Receipt of cash from customers

Answer: c) Conversion of bonds into common stock

15.In the cash flow statement, if the beginning cash balance is $10,000, the ending cash balance is $15,000, and net cash flow from operating activities is $5,000, what is the net cash flow from investing and financing activities?

a) ₹0

b) ₹5,000

c) ₹10,000

d) ₹15,000

Answer: a) ₹0

16.In the cash flow statement, what is the formula for calculating free cash flow?

a) Cash from Operating Activities - Capital Expenditures

b) Net Income - Depreciation

c) Cash from Financing Activities - Cash from Investing Activities

d) Net Income + Changes in Working Capital

Answer: a) Cash from Operating Activities - Capital Expenditures

17.Which of the following is considered an example of an investing activity in the cash flow statement?

a) Payment of interest on loans

b) Purchase of equipment

c) Payment of dividends to shareholders

d) Borrowing money from a bank

Answer: b) Purchase of equipment

18.If a company repurchases its own shares, how is this transaction classified in the cash flow statement?

a) Operating activity

b) Investing activity

c) Financing activity

d) Non-operating activity

Answer: c) Financing activity

19.When preparing a cash flow statement using the indirect method, what is added back to net income to calculate cash from operating activities?

a) Depreciation

b) Interest expense

c) Gain on the sale of assets

d) Amortization of intangible assets

Answer: a) Depreciation

20.What does a positive cash flow from operating activities indicate?

a) The company is generating cash from its core operations.

b) The company is experiencing financial difficulties.

c) The company is investing heavily in new projects.

d) The company's shareholders are unhappy.

Answer: a) The company is generating cash from its core operations.

21.What is the primary purpose of a cash flow statement?

a) To calculate net income

b) To report changes in cash and cash equivalents

c) To calculate depreciation expenses

d) To assess the company's profitability

Answer: b) To report changes in cash and cash equivalents

22.Which section of the cash flow statement includes activities related to buying and selling investments?

a) Operating activities

b) Investing activities

c) Financing activities

d) Cash equivalents activities

Answer: b) Investing activities

23.When preparing a cash flow statement, interest received from loans is classified as:

a) Operating activity

b) Investing activity

c) Financing activity

d) Non-cash transaction

Answer: a) Operating activity

24.Which of the following is an example of a cash outflow in the financing activities section of a cash flow statement?

a) Sale of equipment

b) Borrowing money from a bank

c) Payment of dividends to shareholders

d) Purchase of inventory

Answer: c) Payment of dividends to shareholders

25.Which accounting method is commonly used for preparing the cash flow statement?

a) Accrual basis

b) LIFO method

c) FIFO method

d) Double-entry accounting

Answer: a) Accrual basis

26.In the cash flow statement, what is the formula for calculating free cash flow?

a) Cash from Operating Activities - Capital Expenditures

b) Net Income - Depreciation

c) Cash from Financing Activities - Cash from Investing Activities

d) Net Income + Changes in Working Capital

Answer: a) Cash from Operating Activities - Capital Expenditures

27.Which of the following is considered an example of an investing activity in the cash flow statement?

a) Payment of interest on loans

b) Purchase of equipment

c) Payment of dividends to shareholders

d) Borrowing money from a bank

Answer: b) Purchase of equipment

28.If a company repurchases its own shares, how is this transaction classified in the cash flow statement?

a) Operating activity

b) Investing activity

c) Financing activity

d) Non-operating activity

Answer: c) Financing activity

29.When preparing a cash flow statement using the indirect method, what is added back to net income to calculate cash from operating activities?

a) Depreciation

b) Interest expense

c) Gain on the sale of assets

d) Amortization of intangible assets

Answer: a) Depreciation

30.What does a positive cash flow from operating activities indicate?

a) The company is generating cash from its core operations.

b) The company is experiencing financial difficulties.

c) The company is investing heavily in new projects.

d) The company's shareholders are unhappy.

Answer: a) The company is generating cash from its core operations.

31.In the cash flow statement, what does the "cash equivalents activities" section typically include?

a) Payments for interest and taxes

b) Investments in short-term marketable securities

c) Dividend payments to shareholders

d) Borrowings and repayments of long-term debt

Answer: b) Investments in short-term marketable securities

32.When a company collects cash from customers for services rendered, how is this transaction reflected in the cash flow statement?

a) As an operating cash inflow

b) As an investing cash inflow

c) As a financing cash inflow

d) As a non-operating cash inflow

Answer: a) As an operating cash inflow

33.Which financial statement provides information about a company's cash flow for a specific period?

a) Income statement

b) Balance sheet

c) Statement of retained earnings

d) Cash flow statement

Answer: d) Cash flow statement

34.What is the purpose of the "non-cash activities" section in the cash flow statement?

a) To list activities that do not affect cash flow

b) To highlight significant non-operating cash transactions

c) To provide details on cash disbursements

d) To report cash equivalents activities

Answer: a) To list activities that do not affect cash flow

35.In the cash flow statement, what is the formula for calculating cash flow from operating activities using the indirect method?

a) Net Income + Depreciation + Changes in Working Capital

b) Net Income - Depreciation - Changes in Working Capital

c) Net Income + Depreciation - Changes in Working Capital

d) Net Income - Depreciation + Changes in Working Capital

Answer: a) Net Income + Depreciation + Changes in Working Capital

36.When preparing a cash flow statement, how are interest payments on loans classified?

a) As an operating activity

b) As an investing activity

c) As a financing activity

d) As a non-operating activity

Answer: a) As an operating activity

37.What is the purpose of the "cash and cash equivalents" section in the cash flow statement?

a) To list all cash transactions

b) To reconcile cash transactions with bank statements

c) To report the beginning and ending cash balances

d) To detail cash disbursements to suppliers

Answer: c) To report the beginning and ending cash balances

38.Which section of the cash flow statement typically includes the issuance and repayment of bonds?

a) Operating activities

b) Investing activities

c) Financing activities

d) Non-cash activities

Answer: c) Financing activities

39.When preparing a cash flow statement using the direct method, which of the following items is subtracted from cash collected from customers?

a) Cash paid to suppliers

b) Cash paid for interest

c) Cash paid for income taxes

d) Cash received from the sale of equipment

Answer: a) Cash paid to suppliers

40.What is the purpose of the "supplemental information" section in the cash flow statement?

a) To provide additional details about significant non-cash transactions

b) To list all cash transactions in chronological order

c) To calculate the company's net income

d) To report the company's total assets

Answer: a) To provide additional details about significant non-cash transactions

Preparing a cash flow statement involves several steps:

 Preparing a cash flow statement involves several steps:

Operating Activities: Start with the net income from the income statement. Adjust it by adding back non-cash expenses (like depreciation) and deducting non-cash revenues. Then, adjust for changes in working capital (like changes in accounts receivable, accounts payable, and inventory).

Investing Activities: List all cash flows related to buying or selling long-term assets, like property, equipment, or investments. Include both cash inflows and outflows.

Financing Activities: Document cash flows related to borrowing or repaying debt and issuing or buying back stock. Include dividends paid to shareholders.

Net Cash Flow: Calculate the net cash flow from each of the three categories: operating, investing, and financing activities. Sum them up to find the total net cash flow for the period.

Beginning and Ending Cash Balance: Add the net cash flow to the beginning cash balance to get the ending cash balance for the period.

Presentation: Present the cash flow statement in a standard format, typically in three sections: operating, investing, and financing activities. Include a reconciliation of the beginning and ending cash balances.

Ensure that the cash flow statement follows the relevant accounting standards (e.g., GAAP or IFRS) and accurately reflects the company's cash inflows and outflows during the reporting period. It's an essential tool for assessing a company's liquidity and financial health.

Added or subtracted in each section :-

Certainly, here's a breakdown of items typically added or subtracted in each section of the cash flow statement:

Operating Activities:

Added (Inflows):

Net income from the income statement.

Depreciation and amortization (added back because they are non-cash expenses).

Any gains on the sale of assets.

Interest received.

Dividends received from investments in other companies (if applicable).

Less (Outflows):

Any losses on the sale of assets.

Interest paid.

Income tax paid.

Payments to suppliers and employees.

Changes in working capital, like increases in accounts receivable, inventory, and prepaid expenses, which represent cash outflows, or decreases in accounts payable, which represent cash inflows.

Investing Activities:

Added (Inflows):

Proceeds from the sale of long-term assets (e.g., property, equipment).

Cash received from the sale of investments.

Principal repayments on loans made to other entities.

Less (Outflows):

Cash spent on purchasing long-term assets.

Cash used for purchasing investments.

Loans made to other entities (if applicable).

Financing Activities:

Added (Inflows):

Proceeds from issuing new debt (e.g., bonds or loans).

Proceeds from issuing new equity (e.g., common stock).

Less (Outflows):

Repayment of debt (principal payments).

Repurchase of company's stock (treasury stock).

Payment of dividends to shareholders.

Remember, these are general guidelines, and the specific items included in each category can vary depending on the company's operations and accounting practices. Always refer to the relevant accounting standards (GAAP or IFRS)