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
