Tag: meaning, merits and demerits of cash flow statement

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

Which of the following statement is true?
a. Cash flow reveals only the inflow of cash.
b. Cash flow reveals only the outflow of cash.
c. Cash flow is a substitute for income statement.
d. Cash flow statement is not a replacement of funds flow statement.

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. Only (a)

  2. Only (b)

  3. Only (b) and (c)

  4. Only (d)

Show answer
Correct Option: D
Explanation:

AS-3, issued by the ICAI in June 1981, which dealt with a statement showing 'changes in financial position' (Fund Flow Statement), has been revised and now deals with the preparations of cash flow statement. The revised AS-3 has made it mandatory for all listed companies to prepare and present a cash flow statement along with other financial statements on annual basis, Hence, it may be noted that fund flow statement is no more considered relevant in accounting and so not discussed.  

Which of the following statement is false?
a. Cash flow statement is helpful in the formation of policies.
b. Cash flow statement is useful for external analysis.
c. Cash flow statement is helpful in estimating future cash flow.

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)

  2. Both (a) and (c)

  3. Both (b) and (c)

  4. None of the above

Show answer
Correct Option: D
Explanation:

Cash flow statement helps users to assess the impact of the activities on the financial position of an enterprise and so on its cash and cash  equivalents.

The objective of Cash Flow Statement are:
a. Analysis of cash position;
b. Short-term cash planning;

c. Evaluation of liquidity;
d. Comparison of operating performance;

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)

  2. Both (a) and (c)

  3. Both (b) and (d)

  4. All of the above

Show answer
Correct Option: D
Explanation:

A cash flow statement shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period. 


The primary objective of cash flow statement is to provide useful information about cash flows of an enterprise during a particular period under various heads, i.e. operating, investing and financing activities.

As per AS-3, Cash flow statement is mandatory for:
a. All enterprises.
b. Companies listed on stock exchange.
c. Companies with turnover of more than Rs. 50 crores.

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)

  2. Both (a) and (c)

  3. Both (c) and (b)

  4. All of the above

Show answer
Correct Option: C
Explanation:

A private limited company with paid up share capital of less than 50 lakh rupees or such higher amount as may be prescribed (not exceeding 5 crore rupees) or with a turnover of less than 2 crore rupees or such higher amount as may be prescribed (not exceeding 20 crore rupees) is not required to prepare cash flow statements while preparing financial statements at the end of the financial year.


On an accounting statement of cash flows an "increases(decrease) in cash and cash equivalent" appears as ________________.

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 cash flow from operating activities

  2. A cash flow from investing activities

  3. A cash flow from financing activities

  4. None of the above

Show answer
Correct Option: D
Explanation:

Cash and cash equivalent are the amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kind of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they presents insignificant risk of changes in value because of changes in interest rates.  

____________ shows the details of cash generating and utilization activities of a company during a given period of time.

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 flow statement

  2. Profit and Loss A/c

  3. Balance sheet

  4. Segment reports

Show answer
Correct Option: A
Explanation:

Cash flow statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. It shows the details of cash generating and utilization activities of a company during a given period of time. 

The difference between cash flow statement and cash budget is/are __________________.

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 flow statement shows the movement of cash whereas cash budget portrays no cash movement.

  2. Cash flow statement is a part of cash budget

  3. Cash budget shows the cash movement of the future period in contrast to cash flow statement where it displays the cash movement of the past period.

  4. All of the above

  5. Both (B) and (C) above

Show answer
Correct Option: C
Explanation:

Cash flow statements analyzes cash transactions which have already occured whereas cash budget shows the cash movement of the future period.

Cash flows include _______________.

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 receipts only

  2. Cash payments only

  3. both (A) and (B)

  4. None of these

Show answer
Correct Option: C

Cash received from debtors _______________.

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. Sources of funds

  2. Sources of cash

  3. Application of funds

  4. No flow of fund

Show answer
Correct Option: D
Explanation:

When a cash payment is received from the debtor, cash is increased and the accounts receivable is decreased. When recording the transaction, cash is debited, and accounts receivable are credited.

A debtor is a person, company, or other entity that owes money. In other words, the debtor has a debt or legal obligation to pay the amount owed. So the cash received from debtors is no flow of funds.

As per accounting standard $AS-3$, the revised cash flow statement is prepared with cash inflow from.

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. Operating activities

  2. Investing activities

  3. Financing activities

  4. None of these

Show answer
Correct Option: D