Q.1 Which of the following is NOT a part of the cash flow statement?
Operating Activities
Investing Activities
Financing Activities
Marketing Activities
Explanation - Cash flow statements include operating, investing, and financing activities. Marketing activities are not included as a category.
Correct answer is: Marketing Activities
Q.2 Cash flow from operating activities primarily deals with:
Day-to-day business operations
Purchase of machinery
Issuing shares
Loan repayments
Explanation - Operating activities involve regular transactions such as sales, purchases, and expenses related to business operations.
Correct answer is: Day-to-day business operations
Q.3 Which accounting standard governs the preparation of cash flow statements in many countries?
IAS 1
IAS 7
IAS 16
IAS 2
Explanation - IAS 7 specifically deals with the preparation and presentation of cash flow statements.
Correct answer is: IAS 7
Q.4 In the indirect method, cash flow from operating activities starts with:
Cash balance
Net profit
Total revenue
Working capital
Explanation - The indirect method begins with net profit and adjusts it for non-cash items and working capital changes.
Correct answer is: Net profit
Q.5 Which of the following is a cash inflow from financing activities?
Payment of dividends
Issue of debentures
Purchase of inventory
Payment of interest
Explanation - Issuing debentures generates cash inflows under financing activities.
Correct answer is: Issue of debentures
Q.6 Depreciation is added back to net profit in the indirect method because:
It reduces profit but not cash
It is a cash expense
It increases working capital
It is a financing activity
Explanation - Depreciation is a non-cash expense, so it is added back while calculating cash from operations.
Correct answer is: It reduces profit but not cash
Q.7 Which of the following is NOT considered an investing activity?
Purchase of machinery
Sale of land
Dividend paid
Investment in shares
Explanation - Dividend paid is a financing activity, not investing.
Correct answer is: Dividend paid
Q.8 Cash flow statement helps in assessing:
Profitability
Liquidity
Depreciation
Valuation
Explanation - Cash flow statements show the liquidity position by tracking inflows and outflows of cash.
Correct answer is: Liquidity
Q.9 Which method is more commonly used in practice for preparing cash flow from operating activities?
Indirect method
Direct method
Hybrid method
Modified accrual method
Explanation - The indirect method is more widely used as it is simpler and starts with net profit.
Correct answer is: Indirect method
Q.10 An increase in accounts receivable will:
Increase cash flow
Decrease cash flow
Not affect cash flow
Be a financing inflow
Explanation - An increase in accounts receivable means cash not yet received, reducing cash inflow.
Correct answer is: Decrease cash flow
Q.11 Which of the following is included in operating activities?
Payment of wages
Purchase of building
Issue of shares
Repayment of loan
Explanation - Payment of wages is a routine operating expense included under operating activities.
Correct answer is: Payment of wages
Q.12 The cash flow statement is prepared for:
A month
A year
A specific period
Indefinite time
Explanation - Cash flow statements cover a particular accounting period (month, quarter, or year).
Correct answer is: A specific period
Q.13 Which of the following is NOT an objective of preparing a cash flow statement?
To assess liquidity
To assess solvency
To assess profitability
To identify cash sources
Explanation - Cash flow statements focus on liquidity and cash movements, not profitability.
Correct answer is: To assess profitability
Q.14 Which of the following is a non-cash item adjusted in the cash flow statement?
Depreciation
Loan repayment
Dividend payment
Purchase of stock
Explanation - Depreciation is a non-cash expense that reduces profit but not cash, so it is adjusted back.
Correct answer is: Depreciation
Q.15 Cash from sale of investments will be shown under:
Operating activities
Investing activities
Financing activities
Non-cash activities
Explanation - Sale of investments is related to investment decisions, so it is an investing activity.
Correct answer is: Investing activities
Q.16 Which of the following transactions does NOT involve cash?
Issue of shares for cash
Purchase of building for cash
Depreciation charged
Loan taken from bank
Explanation - Depreciation is a non-cash expense, hence does not involve actual cash outflow.
Correct answer is: Depreciation charged
Q.17 What does a positive cash flow from operating activities indicate?
Business is profitable
Business generates sufficient cash
Business is solvent
Business has no liabilities
Explanation - Positive operating cash flow indicates the business generates enough cash to sustain operations.
Correct answer is: Business generates sufficient cash
Q.18 Payment of dividends is shown under:
Operating activities
Investing activities
Financing activities
Non-cash adjustments
Explanation - Dividends are paid to shareholders, making them financing outflows.
Correct answer is: Financing activities
Q.19 Purchase of stock-in-trade is classified under:
Operating activities
Investing activities
Financing activities
Non-cash items
Explanation - Purchasing stock is part of day-to-day operating activities.
Correct answer is: Operating activities
Q.20 Which of the following reduces cash flow from financing activities?
Repayment of loan
Issue of shares
Proceeds from debentures
Fresh borrowings
Explanation - Repayment of loans involves cash outflow in financing activities.
Correct answer is: Repayment of loan
Q.21 Cash flow statements are prepared using:
Cash basis
Accrual basis
Hybrid basis
Modified accrual basis
Explanation - Cash flow statements track actual cash inflows and outflows, hence prepared on cash basis.
Correct answer is: Cash basis
Q.22 Which activity includes acquisition of patents?
Operating activities
Investing activities
Financing activities
Non-cash activities
Explanation - Acquisition of patents is an investment decision, hence investing activity.
Correct answer is: Investing activities
Q.23 Interest received on investments is shown under which activity as per IAS 7?
Operating activities
Investing activities
Financing activities
Non-cash adjustments
Explanation - As per IAS 7, interest received is classified as an investing activity.
Correct answer is: Investing activities
Q.24 Which of the following is TRUE about cash equivalents?
Short-term, highly liquid investments
Long-term bonds
Shares held for investment
Land and buildings
Explanation - Cash equivalents are short-term, highly liquid assets readily convertible to cash.
Correct answer is: Short-term, highly liquid investments
Q.25 Which of the following is NOT an objective of a cash flow statement?
To provide information about cash inflows
To provide information about cash outflows
To measure net worth
To provide information on liquidity
Explanation - Cash flow statement shows cash movement and liquidity, not net worth.
Correct answer is: To measure net worth