MCQs on Cash Flow Statement

In terms of finance and accounting, the cash flow statement is a financial statement that will describe how any changes in balance sheet accounts will affect the cash. It also describes the analysis concerning investing, operating, and financing activities. The people who are interested in cash flow statements are accounting people, money lenders who need to know whether a company can repay the money, directors of the company, who make sure that the company is not trading while insolvent, the potential investors of the company and the shareholders of the company. Let’s look at  MCQs of the same.

MCQ’S

1) The cash flow statement analysis is described in terms of which of the following activities?

1. a) Operating activities
2. b) Financing activities
3. c) Investing activities
4. d) All of the above

Ans: d) All of the above

Explanation:

The cash flow statement full script effect on cash of the changes in the balance sheet in terms of activities like financing, operating, and investing. Hence, options a,b and call are correct. So, the final option will be option d.

2) In the cash flow statement if the company invests more in fixed assets and short term financial investments, it would result to:

1. a) decreased cash
2. b) increased cash
3. c) increased equity
4. d) increased liability

Ans: a) decreased cash 

Explanation:

The fixed assets include furniture, land machinery, and building. Investing in such fixed assets and investing in short-term financial investments leads to decreased cash.

3)  Which of the following are regarded as financial activities in the cash flow?

1. a) The interest that is paid
2. b)The issue of preference share
3. c) The redemption of the preference share
4. d) All of the above

Ans: d) All of the above

Explanation:

All the financial activities which affect the balance sheet and the cash flow will be regarded as financial activities in the cash flow. Hence, all of the above options are true, so option d, all of the above.

4) An activity that falls under operating activity in the cash flow statement is:

1. a) The sales of the fixed asset
2. b) The interest that is paid on term deposits by a bank
3. c) The purchase of the own debenture
4. d) The sewing of equity share capital

Ans: b) The interest that is paid on term deposits by the bank

Explanation:

Operational activities are the activities required to carry out a company’s operations. The activities include interest paid to terms deposited by banks, the salary of the employees, etc.

5) The cash flow statement will define the cash flow concerning which of the following?

1. a) the operating and non-operating flows
2. b) The outflow and inflow
3. c) The investing and non-operating floors
4. d) The investing, operating, and financing activities

Ans: d) The investing, operating, and financial activities

Explanation:

The definition of the cash flow statement scribes the flow of cash in terms of operating activities, investing activities, and financing activities. Hence, the correct option is option d.

6) Who will be interested in the cash flow statements of a company?

1. a) The directors of the company
2. b) The shareholders of the company
3. c) The potential investors of the company
4. d) All of the above

Ans: d) All of the above

Explanation:

They will be interested in the cash flow statement to ensure the company doesn’t trade while insolvent; the potential investors and shareholders will be interested in the cash flow statement to know its financial condition. Hence, option d, all of the above is correct.

7) What does the cash flow statement intend to do?

1. a) The future cash flows and borrowing could be predicted
2. b) Different companies can be easily compared with each other
3. c) Provide formation regarding a company’s solvency, liquidity, and financial stability
4. d) All of the above

Ans: d) All of the above

Explanation:

The cash flow statement tells us many things about a company like it’s like the future cash flow. The performance of the two companies can be analysed by comparing the cash flow statements. Hence, option d.

8) The company which issues bonds and stocks to raise funds will result to:

1. a) Increase in cash
2. b) decrease in cash
3. c) increase in the liabilities
4. d) increase in the equity

Ans: a) Increase in the cash

Explanation:

When more bonds and stocks are issued, the fit gain from these activities will increase cash in the organisation. This cash can be used to carry out other activities and operations in the company.

9) The activity which is recorded as investing activity in cash flow is:

1. a) Sale of investment by non-financial enterprise
2. b) Issuing a debenture
3. c) Paying back a loan
4. d) The raw material purchased with cash

Ans: a) Sale of investment by a non-financial enterprise

Explanation:

The activities which fall under the investing activities of the cash flow statement are the collection of loans, proceeds of insurance settlements and the sale of investment instruments like bonds and stocks. Hence, option a is correct.

10) The financial statements will include which of the following entities?

1. a) The balance sheet and the income statement
2. b) The statement regarding the equity of shareholders
3. c) The statements of the cash flow
4. d) All of the above

Ans: d) All of the above

Explanation:

There are five types of financial statements, which include: the statement of change in equity, the cash flow statement, the income statement, the statement regarding equity of the cash holder and the statement of the financial position. 

11) Will the purchase value of assets over IT serviceable life come under the following terms?

1. a) appreciated assets
2. b) appreciated liabilities
3. c) depreciation     
4. d) appreciation

Ans: c) depreciation

Explanation: 

Calculating the cost of tangible assets over their useful life is accounted for by depreciation. Hence, the purchase value of assets over their serviceable life will come under depreciation.

12) Which of the following are the objectives of the cash flow statement?

1. a) The cash basis of the accounting
2. b) The credit basis of the accounting
3. c) The accrual basis of the accounting
4. d) None of the above

Ans: a) The cash basis of the accounting

Explanation:

The cash flow statement provides data about the company’s cash flow due to ongoing operations. Its main focus is the flow of cash aspect of the accounting and not the credit or the accrual aspect.

13) What of the following statements will be considered false?

1. a) Cash flow statements are useful for forming policies.
2. b) The external analysis can be performed with a cash flow statement.
3. c) The cash flow can be estimated with the help of a cash flow statement.
4. d) None of the above

Ans: d) None of the above

Explanation:

The cash flow statement is of a lot of use. It helps estimate future cash flow, helps people outside the company for external analysis, and the directors of a company can form policies based on the cash flow statement. Hence, none of the above statements is false.

14) The cash flow statement is also called:

1. a) The statement for accounting for the variation in cash
2. b) The statement of changes in financial position based on cash
3. c) Both a and b
4. d) None of the above

Ans: c) Both a and b

Explanation:

The cash flow statement describes the variation inflow of cash and describes the change in a financial position concerning cash. Hence, option a and b are both correct.

15) The cash flow statement is prepared from which of the following?

1. a) By making use of the balance sheet
2. b) The profit and loss account is used
3. c) Additional information
4. d) All of the above

Ans: d) All of the above

Explanation:

A lot of information about cash flow is required to prepare the cash flow statement. This includes information about profit and loss accounts for the balance sheet information and extra information.

16) Which of the following must be eliminated to calculate cash flow shown in the profit and loss account converted into receipts and payments?

1. a) Non-cash expenses from the expenses which were incurred
2. b) The non-cash revenue from the revenue which is earned
3. c) Both a and b
4. d) None of the above

Ans: c) Both a and b

Explanation:

The profit and loss account contains the non-cash revenues and expenses as well. They need to be eliminated to calculate the cash flow of the operating activities shown in the profit and loss account.

17) How is the cash flow due to the sales calculated?

1. a) opening debtors + sales + opening B/R – closing debtors – closing B/R
2. b) cash collections + cash sales
3. c) None of a and b
4. d) Both a and b

Ans: d) Both a and b

Explanation:

The cash flow due to cells can be calculated by adding cash sales with cash collection. It can also be calculated by adding opening debtors and opening B/R and sales while subtracting closing debtors and closing B/R.

18) Which of the following come under investing activities in the cash flow?

1. a) Sale of fixed assets
2. b) The interest that is received
3. c) Dividend received
4. d) All of the above

Ans: d) All of the above

Explanation:

The sale of fixed assets, interest received, and the dividend received all come under the investing activities of the cash flow.