Statement of Cash Flows: Master Cash Inflows and Outflows

Question 1

In the statement of cash flows, which transaction is considered an operating activity?

Accepted Answer

Buying inventory

Answer

Issuing common stock

Answer

Paying dividends

Answer

Selling equipment

Question 2

Which transaction is included as part of operating activities in the statement of cash flows?

Accepted Answer

Payment to suppliers

Answer

Sale of shares

Answer

Purchase of equipment

Answer

Payment of dividends

Question 3

Which of the following transactions results in a cash inflow from investing activities?

Accepted Answer

Sale of a delivery van

Answer

Purchase of land

Answer

Payment of loan principal

Answer

Issuance of new shares

Question 4

The indirect method for preparing the statement of cash flows is primarily based on:

Accepted Answer

Adjusting net income for non-cash items

Answer

Tracking changes in balance sheet accounts

Answer

Combining direct and indirect methods

Answer

Projecting future cash flows

Question 5

What is the key purpose of providing supplemental cash flow disclosures?

Accepted Answer

To enhance the understanding of a company's cash position

Answer

To eliminate the need for a separate cash flow statement

Answer

To summarize the changes in a company's cash balance

Answer

To forecast future cash flows

Question 6

Which characteristic of cash equivalents is correct?

Accepted Answer

They are highly liquid and can be easily converted into cash within a short period.

Answer

They include long-term investments that mature in over one year.

Answer

They are reported as part of the company's cash balance itself.

Answer

They are not considered cash for the purposes of the statement of cash flows.

Question 7

What is the primary objective of analyzing the statement of cash flows?

Accepted Answer

To assess a company's ability to generate and utilize cash

Answer

To predict future cash flows with certainty

Answer

To evaluate a company's financial performance exclusively

Answer

To determine a company's profitability

Question 8

Which is a common use of the statement of cash flows by financial analysts and investors?

Accepted Answer

To assess a company's liquidity and solvency

Answer

To forecast the company's earnings per share accurately

Answer

To evaluate the company's dividend policy solely

Answer

To determine the company's book value

Question 9

Which transaction would be classified as a cash inflow from operating activities on the statement of cash flows?

Accepted Answer

Selling inventory during regular business operations

Answer

Issuing bonds

Answer

Paying employee salaries

Answer

Purchasing new equipment

Question 10

Which item is not included in the Statement of Cash Flows?

Accepted Answer

Retained Earnings

Answer

Operating Activities

Answer

Financing Activities

Question 11

Why is the Statement of Cash Flows considered a critical financial statement when assessing a company's financial health?

Accepted Answer

It provides insights into a company's ability to meet its short-term obligations.

Answer

It demonstrates a company's long-term profitability.

Answer

It accurately forecasts a company's future cash flows.

Answer

It is less significant than the Balance Sheet or Income Statement.

Question 12

How is depreciation expense accounted for in the Statement of Cash Flows?

Accepted Answer

Added back to operating cash flow

Answer

Deducted from operating cash flow

Answer

Added back to investing cash flow

Answer

Deducted from financing cash flow

Question 13

What is the primary purpose of the Statement of Cash Flows?

Accepted Answer

To provide information about a company's cash inflows and outflows

Answer

To show a company's net income

Answer

To assess a company's financial stability

Answer

To predict a company's future performance

Question 14

What is the primary purpose of the Statement of Cash Flows?

Accepted Answer

To track the flow of cash within an accounting period

Answer

To provide an overview of a company's overall financial performance

Answer

To show changes in a company's equity

Answer

To measure the profitability of a company

Question 15

Which of the following is NOT classified as an operating cash outflow?

Accepted Answer

Issuance of shares

Answer

Purchase of inventory

Answer

Payment of rent

Answer

Payment of wages

Question 16

Which accounting framework governs the preparation of the Statement of Cash Flows in the United Kingdom?

Accepted Answer

International Financial Reporting Standards (IFRS)

Answer

US Generally Accepted Accounting Principles (GAAP)

Answer

UK Generally Accepted Accounting Practices (UK GAAP)

Answer

International Accounting Standards (IAS)

Question 17

The Statement of Cash Flows is a required financial statement for:

Accepted Answer

Public companies listed on the stock exchange

Answer

All companies incorporated in the United Kingdom

Answer

Companies with annual revenues above a certain threshold

Answer

Companies seeking external financing

Question 18

When preparing the Statement of Cash Flows using the indirect method, we begin with the:

Accepted Answer

Net income

Answer

Net cash flow from operating activities

Answer

Closing cash balance

Answer

Beginning cash balance

Question 19

Which of the following transactions would result in a cash outflow under Investing Activities?

Accepted Answer

Purchase of a new machine

Answer

Issuance of shares for cash

Answer

Repayment of a loan

Answer

Declaration of dividends

Question 20

The Statement of Cash Flows is most useful for:

Accepted Answer

Assessing a company's short-term liquidity

Answer

Evaluating a company's long-term solvency

Answer

Predicting a company's future profitability

Answer

Determining a company's dividend policy

Question 21

When evaluating a Statement of Cash Flows, why is it essential to consider both quantitative and qualitative factors?

Accepted Answer

Considering qualitative factors can reveal potential risks and opportunities that may impact cash flows.

Answer

Quantitative factors alone offer a complete view of a company's financial standing.

Answer

Qualitative factors hold more weight than quantitative factors in cash flow analysis.

Answer

Quantitative factors are the only source of dependable information for analyzing the Statement of Cash Flows.

Question 22

What is the main goal of the Statement of Cash Flows?

Accepted Answer

To show how a company manages its cash

Answer

To show a company's earnings

Answer

To report changes in a company's assets and debts

Question 23

Which of the following is the primary objective of a Statement of Cash Flows?

Accepted Answer

To provide insights into a company's sources and uses of cash

Answer

To assess a company's profitability

Answer

To predict a company's future financial performance

Answer

To evaluate a company's solvency

Question 24

What are the three main categories of activities reported in a Statement of Cash Flows?

Accepted Answer

Operating, investing, and financing

Answer

Income, expense, and equity

Answer

Assets, liabilities, and owners' equity

Answer

Short-term, long-term, and current

Question 25

Which of the following items would be included in the Investing Activities section of a Statement of Cash Flows?

Accepted Answer

Purchase of property, plant, and equipment

Answer

Payment of interest expense

Answer

Issuance of debt

Answer

Collection of accounts receivable

Question 26

What is the purpose of a reconciliation of net income to cash flow from operating activities?

Accepted Answer

To adjust net income for non-cash items

Answer

To verify the accuracy of the Statement of Cash Flows

Answer

To forecast future cash flows

Answer

To compare a company's performance to industry benchmarks

Question 27

Which of the following would be considered a cash equivalent for the purpose of preparing a Statement of Cash Flows?

Accepted Answer

Marketable securities

Answer

Accounts payable

Answer

Inventory

Answer

Prepaid expenses

Question 28

How does the Statement of Cash Flows help assess a company's liquidity and short-term solvency?

Accepted Answer

By showing cash flow from operations, investments, and financing

Answer

By providing the company's current and quick ratios

Answer

By showing the company's net income

Answer

By detailing the company's inventory levels

Question 29

Which section of the Statement of Cash Flows primarily captures a company's cash inflows from operating activities?

Accepted Answer

Operating Activities

Answer

Investing Activities

Answer

Financing Activities

Answer

Non-Operating Activities

Question 30

Which of the following is an example of an indirect method used for reporting cash flows from operating activities?

Accepted Answer

Net income plus depreciation and amortization

Answer

Net sales minus cost of goods sold and expenses

Answer

Cash inflows from dividends minus cash outflows for interest payments

Answer

Cash receipts from customers minus cash payments to suppliers

Question 31

What is the purpose of the 'Reconciliation of Net Income to Net Cash Provided by Operating Activities' section?

Accepted Answer

To identify and adjust non-cash items to arrive at the actual net cash provided by operating activities

Answer

To compare net income to cash flow from investing activities

Question 32

Which of the following activities would typically be classified as an investing activity?

Accepted Answer

Purchase of long-term assets, such as property or equipment

Answer

Issuance of shares to raise capital

Answer

Payment of wages to employees

Question 33

What is the primary objective of analyzing a company's Statement of Cash Flows?

Accepted Answer

To evaluate a company's liquidity and solvency

Answer

To assess a company's investment potential

Answer

To project a company's future financial performance

Answer

To determine a company's profitability

Question 34

Which of the following ratios can be calculated using information from the Statement of Cash Flows?

Accepted Answer

Operating cash flow ratio

Answer

Debt-to-equity ratio

Answer

Current ratio

Answer

Dividend payout ratio

Question 35

Which of the following is a potential advantage of using the Statement of Cash Flows over other financial statements?

Accepted Answer

It provides insights into a company's cash-generating ability and its short-term financial viability

Answer

It is more reliable than other financial statements

Answer

It is easier to understand than the balance sheet or income statement

Question 36

Within the context of the Statement of Cash Flows, what is the industry term commonly used to refer to 'net cash provided by operating activities'?

Accepted Answer

Cash flow from operations

Answer

Operating profit

Answer

Working capital

Answer

Net income

Question 37

Which of the following transactions would be classified as an investing activity on the Statement of Cash Flows?

Accepted Answer

Purchase of a new factory building

Answer

Payment of dividends to shareholders

Answer

Collection of accounts receivable

Answer

Issuance of bonds

Question 38

A company issues new shares of stock for £50,000.  How would this transaction be reflected on the Statement of Cash Flows?

Accepted Answer

Cash inflow from financing activities

Answer

Cash inflow from operating activities

Answer

Cash outflow from financing activities

Answer

Cash outflow from investing activities

Question 39

What is the primary purpose of the Statement of Cash Flows?

Accepted Answer

To provide information about a company's cash receipts and payments during a specific period.

Answer

To analyze a company's long-term solvency.

Answer

To measure the profitability of a company.

Answer

To assess a company's financial position at a specific point in time.

Question 40

A company pays £10,000 for a new computer system.  How would this transaction be reflected on the Statement of Cash Flows?

Accepted Answer

Cash outflow from investing activities

Answer

Cash inflow from financing activities

Answer

Cash inflow from investing activities

Answer

Cash outflow from operating activities

Question 41

A company issues bonds for £100,000.  How would this transaction be reflected on the Statement of Cash Flows?

Accepted Answer

Cash inflow from financing activities

Answer

Cash outflow from financing activities

Answer

Cash inflow from operating activities

Answer

Cash outflow from investing activities