Tag: meaning, merits and demerits of cash flow statement

Questions Related to meaning, merits and demerits of cash flow statement

Stock at the end results in the __________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Source of funds

  2. Application of funds

  3. No flow of funds

  4. Cash flow

Show answer
Correct Option: A
Explanation:

Source of funds results in the generation of cash for the company. Stock at the end has two aspects in the financial statements. One effect is credited to trading account and other one is shown as asset in the balance sheet. Assets are nothing but the sources of funds. Hence stock at the end results in source of funds.

a) Funds flow statement and cash flow statement are one and the same.
b) A cash flow statement can very well be equated with an 'Income statement'
Of these statements :- 

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Both (A) and (B) are true

  2. Both (A) and (B) are false

  3. (A) is true but (B) is false

  4. (A) is false but (B) is true

Show answer
Correct Option: B
Explanation:

(a) A cash flow statement is different from a cash budget. A cash flow statement shows the cash inflows and outflows which have already taken place during a past time period.

Funds Flow Statement states the changes in the working capital of the business in relation to the operations in one time period.

(b) A cash flow statement shows the exact amount of a company's cash inflows and outflows over a one-month period. 
The income statement is the most common financial statement, and shows a company's revenue and total expenses, including non-cash accounting such as depreciation, over a one-month period.
Both are different.

Stock in the beginning results in __________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. A source of funds

  2. An application of funds

  3. No flow of funds

  4. Change in current assets

Show answer
Correct Option: B
Explanation:

Application of funds is a fund statement which shows sources and uses of the working capital and other liquid funds Hence, stock in the beginning results in an application of funds.

Which of the following are true or false?
a) Purchase of fixed assets is a use of funds.
b) For funds flow statement, provision for taxation will be treated as an item of internal source.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. both (a) and (b) are true

  2. both (a) and (b) are false

  3. (a) is true but (b) is false

  4. (a) is false but (b) is true

Show answer
Correct Option: A
Explanation:

Use of funds refers to investing funds in purchase of assets which gives return after some period of time. Hence, purchase of fixed assets is a use of funds. 


Provision for taxation is treated as an item of internal source because it is made internally.

Match the items of the following two lists and suggest the correct code:

List-I List-II
(a) Pay-back Rate of Return (i) Discounted Cash Flow Technique
(b) Internal Rate of Return (ii) Compounded values of investments and returns
(c) Benefit Cost Ratio (iii) Crude method for project evaluation
(d) Net Terminal Value Method (iv) Varying sized projects evaluation
commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. $(a)-(ii), (b)-(iii), (c)-(i), (d)-(iv)$

  2. $(a)-(iii), (b)-(i), (c)-(iv), (d)-(ii)$

  3. $(a)-(i), (b)-(iv), (c)-(ii), (d)-(iii)$

  4. $(a)-(iv), (b)-(ii), (c)-(iii), (d)-(i)$

Show answer
Correct Option: B
Explanation:
  • The payback reciprocal is a crude estimate of the rate of return for a project or investment. 
  • The internal rate of return (IRR) is a discounting cash flow technique which gives a rate of return earned by a project.
  • A benefit-cost ratio (BCR) is a ratio used in a cost-benefit analysis to summarize the overall relationship between the relative costs and benefits of a proposed project.
  • The terminal value method is an improvement over the net present value method of making capital investment decisions. 

The term 'Cash' stands for__________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Cash and Bank Balance

  2. Bank Balance

  3. Cash and Funds position

  4. None of the above

Show answer
Correct Option: A
Explanation:

Cash is a legal tender or coins that can be used to exchange goods,debt or services. 

Cash refers to money in hand,money in banking accounts, cheques, or any other form of currency that is easily accessible and can be quickly turned into physical cash.

Which of the following items would be specifically included in the statement of cash flows constructed in compliance with $AS-3$?

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Conversion of debt to equity

  2. Acquiring an asset through lease

  3. Operating and non-operating cash flow information

  4. Purchasing a building by given a mortgage to the seller

Show answer
Correct Option: C
Explanation:

Operating and non-operating cash flow are inflows and outflows of cash that are related or not related to the day-to-day, ongoing operations of a business. These non operating cash flows are associated with cash flows from investing and cash flows from financing on a company's statement of cash flows.

Cash Flow Management involves.
i) Lock-box system
ii) Marketable securities
iii) Playing the float
iv) Concentration Bank Account

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. I, II and III only

  2. II, III and IV only

  3. I, III and IV only

  4. I, II and IV only

Show answer
Correct Option: C
Explanation:
  • A lockbox is a bank-operated mailing address to which a company directs its customers to send their payments. The bank opens the incoming mail, deposits all received funds in the company's bank account, and scans the payments and any remittance information.
  • In cash management, float can be utilized to make use of cash on hand for as long as possible. Bank float is the time it takes to clear the funds, from the time they were deposited to the time they were credited to the depositing bank.
  • Cash Concentration is a corporate treasury management strategy involving the transfer of all funds from different accounts to a single, centralized account to increase cash management efficiency and reduce fees. 

Which of the following statement are false?
a. Old furniture written off doesn't affect cash flow.
b. Cash flow statement is a substitute for cash account.
c. Appropriation of retained earnings is not shown in cash flow statement.
d. Net cash flow during a period can never be negative.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. A, B and C

  2. B, C and D

  3. C, D and A

  4. None of the above

Show answer
Correct Option: B
Explanation:

Statement of cash flows, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, financing activities. 

Cash flow statement is based upon ______________.

commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

  1. Cash basis of accounting.

  2. Accrual basis of accounting.

  3. Credit basis of accounting.

  4. None of the above.

Show answer
Correct Option: A
Explanation:

Cash flow is calculated by making certain adjustments to net income by adding or subtracting differences in revenue, expenses and credit transactions resulting from transactions that occur from one period to the next.  These adjustments are made because non-cash items are calculated into net income and total assets and liabilities. 

So, because not all transactions involve actual cash items, many items have to be reevaluated when calculating cash flow from operations.