Deck 7: Statement of Cash Flows

Question 1

Which of the following statements is true?

A) For an entity to survive, the net cash flow from operating activities should be negative.
B) For an entity to survive, the net cash flow from investing activities should be positive.
C) For an entity to survive, the net cash flow from financing activities should be positive.
D) For an entity to survive, the net cash flow from operating activities should be positive.

Answer 1

D

Question 2

Proceeds from the sale of motor vehicles will be included in the statement of cash flows as:

A) a financing activity.
B) an investing activity.
C) an operating activity.
D) a cash activity.

Answer 2

B

Question 3

Which of the following items would not appear in a statement of cash flows?

A) Depreciation expense.
B) Lease payments.
C) Dividends received.
D) Payment of wages.

Answer 3

A

Question 4

A business purchases equipment worth $50 000 to be used in their manufacturing process.This transaction would be classified as which type of activity in the statement of cash flows?

A) Financing.
B) Non-cash.
C) Operating.
D) Investing.

Question 5

Which of the following is not a characteristic of cash and cash equivalents?

A) They have a very low, or insignificant, risk of changing in value.
B) They are highly liquid investments.
C) They include short-term borrowings with a maturity of less than 3 months.
D) None of the above. They are all characteristics of cash and cash equivalents.

Question 6

Which of the following represents an investing activity on the statement of cash flows?

A) Repaying money previously borrowed.
B) Receiving cash from a share issue.
C) Collecting cash on loans previously made to other entities.
D) Obtaining cash from creditors.

Question 7

Which relationship between items in the statement of cash flows (CF)and items in the balance sheet (BS)is not correct?

A) Cash from investing activities (CF); Non-current assets (BS).
B) Cash from financing activities (CF); Non-current liabilities and equity (BS).
C) Cash from financing activities (CF); Non-current assets (BS).
D) Cash from operating activities (CF); Current assets and liabilities (BS).

Question 8

In which section of the statement of cash flows would the purchase of new machinery be included?

A) Cash flows from operating activities.
B) Cash flows from investing activities.
C) Cash flows from financing activities.
D) Purchases of new equipment items are not included in the statement of cash flows.

Question 9

The correct order of activities for the preparation of a statement of cash flows is:

A) cash flows from financing activities, cash flows from operating activities, cash flows from investing activities.
B) cash flows from investing activities, cash flows from financing activities, cash flows from operating activities.
C) cash flows from operating activities, cash flows from investing activities, cash flows from financing activities.
D) cash flows from investing activities, cash flows from operating activities, cash flows from financing activities.

Question 10

When preparing a statement of cash flows,net cash from operating activities + investing activities + financing activities = net increase/decrease in cash for the year.What appears next on the statement?

A) Add the beginning balance of cash for the year to determine the ending balance of cash for the year.
B) Deduct the beginning balance of cash for the year to determine the ending balance of cash for the year.
C) Deduct cash paid to suppliers to determine the ending balance of cash for the year.
D) Nothing. The statement is complete.

Question 11

A reconciliation between the operating profit after tax and the net cash flow from operating activities:

A) highlights changes in the working capital accounts from one year to the next.
B) reinforces the link between the cash received from operating activities and the reported profit or loss for the period.
C) shows the differences in accrual transactions and cash flow.
D) all the above options are correct.

Question 12

Cash receipts from dividends are classified as which activity in the statement of cash flows?

A) Financing.
B) Investing.
C) Operating.
D) Financing or investing.

Question 13

Which of the following information can be obtained from a statement of cash flows but is not obvious from looking at financial statements prepared on an accrual basis?

A) Whether the entity is collecting its receivables in a timely manner.
B) Whether the entity is generating cash from its operations.
C) Whether the entity is likely to be able to pay its debts as and when they fall due.
D) All the above options are true.

Question 14

The primary purpose of the statement of cash flows is to:

A) provide information about the profit or loss during the accounting period.
B) provide information about the cash receipts and cash payments made during the accounting period.
C) show the deficit of cash during the period.
D) show the cash balance at the end of the period.

Question 15

The section of the statement of cash flows that is generally considered to be the best measure of a company's ability to generate cash is:

A) each section gives an equal estimation.
B) cash flows from operating activities.
C) cash flows from financing activities.
D) cash flows from investing activities.

Question 16

When reconciling operating profit after tax with net cash flow from operating activities,which of the following adjustments is not correct?

A) Add back amortisation.
B) Add an increase in a current liability.
C) Deduct an increase in a current asset.
D) Deduct a loss on the sale of an asset.

Question 17

Cash outflows from financing activities include:

A) cash paid for the purchase of shares.
B) the lending of money to another business.
C) payment of income tax.
D) dividends paid to shareholders.

Question 18

Which of these would not be classified as an operating activity in a statement of cash flows?

A) Payment of interest expense.
B) Cash received as payment for the purchase of goods on credit.
C) Cash dividends received.
D) Loan repayments.

Question 19

Which of these causes a difference between the profit in the income statement and the net cash increase in the statement of cash flows?

A) Depreciation.
B) Prepaid insurance.
C) Credit purchases not yet paid.
D) All of the above.

Question 20

Which of these is not an example of cash or cash equivalents?

A) Money market deposit with 6 months maturity.
B) Bank overdraft.
C) Bank and non-bank bills.
D) Bank deposits.

Question 21

If the balance of the plant and equipment asset account at the beginning of the year is $800 000,the closing balance is $650 000,and plant and equipment originally purchased for $165 000 are sold during the year,the amount spent on purchases of new plant and equipment during the year equals:

A) $485 000
B) $135 000
C) $150 000
D) $15 000

Question 22

In the current financial period,accrued expenses are recorded as $250 000 and the cash paid for expenses,as shown in the statement of cash flows,is $180 000.This means that:

A) expenses may have been paid for in advance in the previous period.
B) expenses may have been incurred in the current period and have not been paid by the end of the current period.
C) depreciation may have been recorded in the statement of profit or loss.
D) all of the options are correct.

Question 23

Calculate the net cash flow from operating activities by adjusting the operating profit after tax.
$\begin{array}{lr}\text { After-tax profit for the year } & \$ 50000 \\ \text { Depreciation } & 8000 \\ \text { Decrease in accounts receivable } & 22000 \\ \text { Decrease in accounts payable } & 13000\end{array}$

A) $15 000
B) $41 000
C) $59 000
D) $65 000

Question 24

Using the information below,the net cash flow from operating activities is:
$\begin{array}{|l|r|}\hline\text{ Cash received from customers} & \$ 213000 \\\hline \text{Cash paid for salaries and other expenses} & 185000 \\\hline \text{Cash received from the sale of equipment }& 12000 \\\hline \text{Gain on the sale of equipment }& 8000 \\\hline\end{array}$

A) inflow of $20 000.
B) inflow of $12 000.
C) inflow of $28 000.
D) inflow of $8 000.

Question 25

An entity's net cash flow from operating activities is important for users of the statement of cash flows because it:

A) indicates the entity's ability to generate cash. b represents the entity's cash flows from normal business operations.
C) indicates that the business is meeting its current obligations.
D) all of the above options are true.

Question 26

Which of the following items would be classified as investing activities in a statement of cash flows?

A) Proceeds from dividends.
B) Proceeds from borrowings.
C) Proceeds from customers.
D) Proceeds from sale of machinery.

Question 27

Which of the following statements in relation to converting accrual information to the cash basis is correct?

A) An increase in current assets means less cash.
B) A decrease in current assets means less cash.
C) An increase in current liabilities means less expense.
D) A decrease in current liabilities means more cash.

Question 28

Assume all inventory items are purchased for cash.If cash payments for inventory in the period total $37 000 and the cost of sales,calculated under the accrual basis,is $40 000:

A) inventory on hand has increased by $3000 during the period.
B) inventory on hand has decreased by $3000 during the period.
C) creditors are owed $3000 at the end of the period for inventory purchases.
D) creditors are owed $40 000 at the end of the period for inventory purchases.

Question 29

If the opening balance of accrued expenses is $34 000,the closing balance is $38 000 and accrued expenses recognised at the end of the period is $20 000,how much was paid for accrued expenses during the period?

A) $14 000
B) $16 000
C) $18 000
D) $28 000

Question 30

Changes in non-current liabilities and equity in the balance sheet appear in the statement of cash flows under:

A) the reconciliation of operating profit with cash flow from operating activities.
B) operating activities.
C) investing activities.
D) financing activities.

Question 31

If profit after tax is $28 000 and increases in inventory and accounts receivable total $17 000,the net cash flow from operating activities is:

A) outflow of $11 000.
B) inflow of $11 000.
C) inflow of $45 000.
D) outflow of $45 000.

Question 32

If the opening balance of borrowings was $330 000,the closing balance was $550 000 and a total of $240 000 was paid off the entity's borrowings during the period,how much additional cash did the entity borrow during the period?

A) $90 000
B) $3100 000
C) $460 000
D) $120 000

Question 33

From the information below,the net cash flow from operating activities is:
Cash contributions from owner $8000
Receipt of bank interest $50
Dividend payment to shareholders $2500
Cash receipts from customers $4500
Cash purchase of computer $2100
Depreciation on computer $50
Cash payments to suppliers $3500

A) an inflow of $5500.
B) an inflow of $1050.
C) an outflow of $2100.
D) an inflow of $6900.

Question 34

If customers owe $120 000 at the beginning of the year and $95 000 at the end of the year,and credit sales total $250 000 for the year,the cash received from customers during the year is:

A) $120 000
B) $370 000
C) $275 000
D) $155 000

Question 35

Using the indirect method to prepare the statement of cash flows,which of the following statements is true?

A) Decrease in current assets means a decrease in cash.
B) Increase in current assets means an increase in cash.
C) Increase in current liabilities means an increase in cash.
D) Decrease in current liabilities means an increase in cash.

Question 36

From the information below,the total net cash flow from investing activities is:
Borrowed $15 000 cash
Sold motor vehicle $1400
Paid Income tax $20 000
Paid Dividends $8500
Received cash from customers $18 000
Cash purchase of furniture $2700
Depreciation on furniture $270

A) an inflow of $1400.
B) an outflow of $2700.
C) an inflow of $6500.
D) an outflow of $1300.

Question 37

Which of the following would not be classified as a cash flow from investing activities?

A) Proceeds from repayment of loans to other parties.
B) Proceeds from the sale of plant and equipment.
C) Cash from borrowings.
D) Purchase of furniture.

Question 38

The amount owing to suppliers for inventory purchases at the beginning of the year is $118 000 and at the end of the year is $94 000.If total credit purchases of inventory for the year are $160 000,the cash paid to suppliers of inventory for the year is:

A) $184 000
B) $66 000
C) $278 000
D) $254 000

Question 39

Investors have increased their reliance on the statement of cash flows due to:

A) the relative difficulty in manipulating the statement of cash flows compared with the ability to manipulate the statement of profit or loss.
B) the comparison of profit or loss to the cash flow from operating activities providing insight to an entity's ability to meet its obligations.
C) the statement highlighting an entity's ability to reinvest in its operations.
D) all of the options are correct.

Question 40

If the opening balance of dividends payable is $120 000 and the closing balance is $90 000,and dividends declared at the end of the period are $50 000,how much cash was paid for dividends in that period?

A) $0
B) $80 000
C) $20 000
D) $40 000

Question 41

The receipt of dividends would be classified as a cash inflow from ______________ activities.

Question 42

Which of the following is not an early warning indicator of cash flow problems?

A) Operating activities are paid for using proceeds raised from the issue of shares.
B) Cash received from customers is greater than cash paid to suppliers.
C) Operating cash outflows.
D) The entity continues to borrow more money than it repays.

Question 43

A net total cash outflow in investing activities is considered ____________(normal or abnormal)for a healthy growing business.

Question 44

Which of the following statements concerning the cash adequacy ratio is true?

A) It measures the entity's ability to reinvest in its operations and to make distributions to owners from its operating cash flow.
B) It expresses the cash flow from operating activities as a percentage of capital expenditure plus dividends.
C) A ratio result greater than one suggests a good performance.
D) All of the statements are true.

Question 45

__________ expense relating to property,plant and equipment is a common business expense that is not included in the statement of cash flows.

Question 46

Cash flows from investing activities arise from changes in non- ___________ ____________ on the balance sheet.

Question 47

The time taken from the purchase of inventory from suppliers to receiving the cash from the sale of that inventory to customers is called the operating ______ ________.

Question 48

If dividends declared at the end of the period are $10 000,and the balance of dividends payable increased by $2000 over the period,the amount of dividends paid during the year is equal to _________.

Question 49

Which of the following statements concerning the cash flow ratio is true?

A) The cash flow ratio is a better measure of liquidity than the current ratio because it is calculated using cash flow generated over a whole reporting period rather than the current assets at a point in time.
B) The cash flow ratio is used to assess liquidity.
C) The cash flow ratio compares the cash flow from operating activities with the current liabilities.
D) All of the above statements are true.

Question 50

Cash from operating activities less the amount spent on capital expenditure is the formula for:

A) the cash flow to sales ratio.
B) the cash adequacy ratio.
C) free cash flow.
D) the debt coverage ratio.

Question 51

A healthy business would normally expect to have a net cash __________ (inflow or outflow)from operating activities.

Question 52

During the financial period the amount owing from debtors increased by $40 000.If the credit sales for the period are $500 000 the cash inflows from debtors on the statement of cash flows will be __________.

Question 53

The opening balance of inventory is $50 000 and the closing balance is $15 000.If cost of sales is $500 000 for the period,assuming creditors' balances have not altered,the amount of cash paid to suppliers is _____________.

Question 54

Which of the following would assist an entity wanting to improve their cash flow?

A) Selling surplus inventory.
B) Investing surplus cash.
C) Utilising the available credit terms when paying suppliers.
D) All of the above options would assist in improving cash flow.

Question 55

Free cash flow is:

A) the cash available to loan to other entities.
B) the cash available to pay current liabilities.
C) the cash available to repay debt, pay dividends and expand operations.
D) the cash available to purchase supplies.

Question 56

Borrowing money and raising share capital are included as ________________ activities on a statement of cash flows.

Question 57

Which of the following cash flow ratios is used to determine an entity's solvency?

A) Debt coverage ratio.
B) Free cash flow ratio.
C) Cash adequacy ratio.
D) Cash flow ratio.

Question 58

The formula for the cash adequacy ratio is :

A) cash from operating activities divided by (capital expenditure plus dividends paid).
B) non-current liabilities divided by cash from operative activities.
C) cash from operating activities divided by non-current liabilities.
D) cash from financing activities divided by net assets.

Question 59

Cash __________________ are highly liquid investments and short-term borrowings that are subject to an insignificant risk of change in value.

Question 60

The statement of cash flows assists decision makers in assessing an entity's ability to _______________cash flows.

Question 61

Comparing an entity's profit or loss with its' net cash from operating activities can indicate how well an entity is managing its ______________ _____________.

Question 62

The ___________ method of preparing a statement of cash flows adjusts an entity's profit or loss for the effects of non-cash transactions and deferrals or accruals of operating activities.

Question 63

Decision makers have increased their reliance on the statement of cash flows due to the relative difficulty in manipulating the statement of ____________ _______________ compared with manipulating the statement of profit or loss.