Master the Statement of Cash Flows: A Comprehensive Guide for Sixth Form Accounting

Question 1

The Statement of Cash Flows primarily focuses on:

Accepted Answer

Changes in a company's cash position

Answer

Assets and liabilities of a company

Answer

Income and expenses of a company

Answer

Financial performance over time

Question 2

Purchasing inventory is classified as a/an:

Accepted Answer

Operating cash flow

Answer

Investing cash flow

Answer

Financing cash flow

Answer

Non-cash flow activity

Question 3

A company with strong cash flow is characterized by:

Accepted Answer

Positive net cash flow from all activities

Answer

High reliance on external financing

Answer

Low levels of operating cash flow

Answer

Significant cash outflows for investing activities

Question 4

Cash equivalents are:

Accepted Answer

Short-term investments quickly convertible into cash

Answer

Long-term investments with a fixed maturity date

Answer

Any form of legal tender currency

Answer

Same as cash without any differences

Question 5

A potential limitation of the Statement of Cash Flows is that it:

Accepted Answer

Can be manipulated to portray a favorable financial position

Answer

Provides comprehensive information about long-term financial performance

Answer

Is only relevant for large corporations

Answer

Is not a mandatory financial statement for all companies

Question 6

Which of the following is classified as an operating cash inflow?

Accepted Answer

Sale of inventory

Answer

Issuance of new shares

Answer

Purchase of equipment

Answer

Payment of dividends

Question 7

The indirect method of preparing the Statement of Cash Flow:

Accepted Answer

Initiates with the accrual-based net income and adjusts for non-cash items

Answer

Begins with the cash balance and tracks changes during the period

Answer

Is more widespread than the direct method

Answer

Provides less detail than the direct method

Question 8

The term 'free cash flow' refers to:

Accepted Answer

Cash flow from operating activities minus capital expenditure

Answer

Cash flow from investing activities minus cash flow from financing activities

Answer

Cash flow from financing activities minus dividends paid

Answer

Total cash inflows minus total cash outflows

Question 9

A key distinction between the Statement of Cash Flows and the Income Statement is that:

Accepted Answer

The Statement of Cash Flows reports on cash transactions, while the Income Statement reports on accrual-based transactions

Answer

The Statement of Cash Flows is only prepared annually, whereas the Income Statement can be prepared more frequently

Answer

The Statement of Cash Flows is more relevant to investors, while the Income Statement is more relevant to creditors

Answer

The Statement of Cash Flows encompasses non-operating items, unlike the Income Statement

Question 10

Which of the following is NOT included in the Statement of Cash Flows?

Accepted Answer

Share Capital

Answer

Operating Activities

Answer

Investing Activities

Answer

Financing Activities

Question 11

Which of the below is NOT a type of cash flow activity presented in the Statement of Cash Flows?

Accepted Answer

Non-cash transactions

Answer

Operating activities

Answer

Investing activities

Answer

Financing activities

Question 12

When using the indirect method, the Statement of Cash Flows starts with:

Accepted Answer

Net income

Answer

Net cash provided by operating activities

Answer

Cash at the start of the period

Answer

Net change in cash

Question 13

The Statement of Cash Flows is primarily intended for:

Accepted Answer

Assessing liquidity and solvency

Answer

Predicting future cash flows

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Determining profitability

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Measuring overall financial performance

Question 14

Term loans and bank overdrafts fall under:

Accepted Answer

Financing activities

Answer

Operating activities

Answer

Investing activities

Answer

Non-operating activities

Question 15

Which of the following ratios can be derived from the Statement of Cash Flows?

Accepted Answer

Cash flow coverage ratio

Answer

Return on assets

Answer

Debt-to-equity ratio

Answer

Price-to-earnings ratio

Question 16

Which section of the Statement of Cash Flows mainly includes transactions that directly affect a company's net income?

Accepted Answer

Operating Activities

Answer

Investing Activities

Answer

Financing Activities

Question 17

What is the Statement of Cash Flows NOT designed to do?

Accepted Answer

Evaluate a company's long-term financing choices

Answer

Show changes in a company's cash position

Answer

Assess a company's cash generation ability

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Identify how a company gets and uses cash

Question 18

Which of the following is NOT a component of the Statement of Cash Flows?

Accepted Answer

Profit or loss

Answer

Operating activities

Answer

Investing activities

Answer

Financing activities