41 Lecture

1. What does the cash flow statement show? a) Revenue and expenses b) Assets and liabilities c) Cash inflows and outflows d) Equity changes

Answer: c) Cash inflows and outflows

2. Which of the following is an example of cash inflow from operating activities? a) Payment for the purchase of a new building b) Sale of goods to customers on credit c) Payment of dividends to shareholders d) Payment of interest on a loan

Answer: b) Sale of goods to customers on credit

3. Which section of the cash flow statement shows the cash inflows and outflows from investing activities? a) Operating activities b) Financing activities c) Investing activities d) Changes in cash and cash equivalents

Answer: c) Investing activities

4. Which of the following is an example of cash outflow from financing activities? a) Sale of a long-term investment b) Payment of interest on a loan c) Payment of dividends to shareholders d) Payment for the purchase of a new building

Answer: c) Payment of dividends to shareholders

5. What is the purpose of the cash flow statement? a) To show the company's net income or loss b) To show the company's financial position c) To show the company's cash inflows and outflows d) To show the company's revenue and expenses

Answer: c) To show the company's cash inflows and outflows

6. What is the formula for calculating cash flow from operating activities? a) Cash inflows - cash outflows b) Net income + depreciation c) Cash received from customers - cash paid to suppliers d) Cash received from investments - cash paid for investments

Answer: c) Cash received from customers - cash paid to suppliers

7. Which of the following is an example of a non-cash transaction that is added back to net income to calculate cash flow from operating activities? a) Payment of dividends to shareholders b) Sale of a long-term investment c) Depreciation expense d) Payment for the purchase of a new building

Answer: c) Depreciation expense

8. What does a negative cash flow from operating activities indicate? a) The company is generating a lot of cash from its operating activities b) The company is not generating enough cash from its operating activities c) The company is investing heavily in its operations d) The company is paying off a lot of debt

Answer: b) The company is not generating enough cash from its operating activities

9. Which financial statement is the cash flow statement a part of? a) Balance sheet b) Income statement c) Statement of changes in equity d) None of the above

Answer: d) None of the above

10. What is the difference between cash flow and net income? a) Cash flow includes all cash inflows and outflows, while net income only includes revenue and expenses b) Cash flow is a measure of liquidity, while net income is a measure of profitability c) Cash flow is calculated using the accrual method, while net income is calculated using the cash method d) Cash flow includes non-cash transactions, while net income only includes cash transactions

Answer: b) Cash flow is a measure of liquidity, while net income is a measure of profitability

1. What is the purpose of the cash flow statement? Answer: The cash flow statement shows the cash inflows and outflows of a company during a specific period. Its purpose is to provide information on the company's operating, investing, and financing activities and assess its liquidity and ability to meet its financial obligations.

2. What is the formula for calculating cash flow from operating activities? Answer: Cash flow from operating activities = Cash received from customers - Cash paid to suppliers - Cash paid for operating expenses

3. What is the difference between cash flow and net income? Answer: Cash flow is a measure of liquidity, while net income is a measure of profitability. Cash flow includes all cash inflows and outflows, while net income only includes revenue and expenses.

4. What is the purpose of the operating activities section of the cash flow statement? Answer: The operating activities section of the cash flow statement shows the cash inflows and outflows from a company's core operations, such as revenue from sales, payments to suppliers, and payments for operating expenses.

5. What is the purpose of the investing activities section of the cash flow statement? Answer: The investing activities section of the cash flow statement shows the cash inflows and outflows from a company's investments in long-term assets, such as property, plant, and equipment, and investments in other companies.

6. What is the purpose of the financing activities section of the cash flow statement? Answer: The financing activities section of the cash flow statement shows the cash inflows and outflows from a company's financing activities, such as the issuance or repayment of debt, issuance or repurchase of equity, and payment of dividends.

7. What is a non-cash transaction in the context of the cash flow statement? Answer: A non-cash transaction is a transaction that does not involve the exchange of cash, such as depreciation expense or a stock dividend. These transactions are added back to net income when calculating cash flow from operating activities.

8. What is the difference between direct and indirect methods for preparing the cash flow statement? Answer: The direct method reports cash inflows and outflows directly, while the indirect method adjusts net income for non-cash transactions to calculate cash flow from operating activities.

9. Why is the cash flow statement important for investors and creditors? Answer: The cash flow statement provides insight into a company's ability to generate cash and meet its financial obligations. Investors and creditors can use this information to assess the company's financial health and make informed investment or lending decisions.

10. How can a negative cash flow from operating activities be improved? Answer: A negative cash flow from operating activities can be improved by increasing cash inflows from customers, reducing cash outflows to suppliers and for operating expenses, and improving operational efficiency to generate more cash from operations.

The cash flow statement is a financial statement that provides information on a company's cash inflows and outflows during a specific period. It shows the cash generated from operating activities, investing activities, and financing activities. The operating activities section of the cash flow statement shows the cash inflows and outflows from a company's core operations, such as revenue from sales, payments to suppliers, and payments for operating expenses. The investing activities section shows the cash inflows and outflows from a company's investments in long-term assets, such as property, plant, and equipment, and investments in other companies. The financing activities section shows the cash inflows and outflows from a company's financing activities, such as the issuance or repayment of debt, issuance or repurchase of equity, and payment of dividends. The cash flow statement is important for investors and creditors because it provides insight into a company's ability to generate cash and meet its financial obligations. Positive cash flow from operating activities indicates that a company is generating enough cash from its operations to meet its day-to-day expenses and reinvest in the business. Negative cash flow from operating activities may indicate a company is experiencing financial difficulties. The cash flow statement can be prepared using either the direct method or the indirect method. The direct method reports cash inflows and outflows directly, while the indirect method adjusts net income for non-cash transactions to calculate cash flow from operating activities. In summary, the cash flow statement is an essential financial statement that provides information on a company's liquidity and ability to meet its financial obligations. It helps investors and creditors make informed investment or lending decisions and provides insight into a company's financial health.