Cash Flow Statement MCQs 2024 [Multiple Choice Questions and Answers 2024]

Cash flow statement MCQs 2024
Multiple Choice Questions and Answers
For Class 12 AHSEC/CBSE/ B.Com / BBA / MBA/CMA examination

In this exclusive page, you will get Cash Flow Statement MCQs for various exams such B.Com, BBA, MBA, CMA, CS and ICAI. These Cash Flow Statement MCQs are also very much helpful for Class 12 CBSE and other state boards including AHSEC.

You can also go through various links given below in the article for Chapter wise Management Accounting MCQs.

Introduction to Cash Flow Statement

A Cash Flow Statement is a statement, which summarises the resources of cash available to finance the activities of a business enterprise and the uses for which such resources have been used during a particular period of time.

Any transaction, which increases the amount of cash, is a source of cash and any transaction, which decreases the amount of cash, is an application of cash.

Simply, Cash Flow is a statement which analyses the reasons for changes in balance of cash in hand and at bank between two accounting period. It shows the inflows and outflows of cash.

 Choose the correct alternatives

1. Cash flow statement is based upon:

a) Cash basis

b) Accrual Basis

c) Accounting Equation

d) Both cash and accrual basis

Ans: a) Cash basis

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2. The objectives of cash flow statements are:

a) Short term cash planning

b) Analysis of cash position

c) Comparison of operating performance

d) All of the above

Ans: d) All of the above

3. Which of the following statement is true?

a) Cash flow is same as profit.

b) Profit is the result of subtracting expenses from sales.

c) Cash flow results from the difference between all cash available and cash payments.

d) Cash flows only when actual payments are not made but only received.

Ans: b) Profit is the result of subtracting expenses from sales.

4. Cash Flow statement is prepared for financial planning of:

a) Long Range

b) Medium Range

c) Short Range

d) Very long Range

Ans: c) Short Range

5. Statement of cash flow includes:

a) Operating activities

b) Investing activities

c) Financing activities

d) All of the above

Ans: d) All of the above

6. An example of cash flow investing activity is:

a) Issue of debentures

b) Repayment of long-term loan

c) Purchase of raw materials for cash

d) Sale of investment by non –financial enterprise

Ans: d) Sale of investment by non –financial enterprise

7. Increase in amount of prepaid expense results in:

a) Increase in cash

b) Decrease in cash

c) No change in cash

d) None of the above

Ans: b) Decrease in cash

8. Interest received/Paid by financial enterprise is shown in the cash flow statement under:

a) Operating Activities

b) Investing Activities

c) Financing Activities

Ans: a) Operating Activities

9. Interest Paid by other than financial enterprise is shown in the cash flow statement under:

a) Operating Activities

b) Investing Activities

c) Financing Activities

Ans: b) Investing Activities

10. Interest received by other than financial enterprise is shown in the cash flow statement under:

a) Operating Activities

b) Investing Activities

c) Financing Activities

Ans: b) Investing Activities

11. Dividend received by financial enterprise is shown in the cash flow statement under:

a) Operating Activities

b) Investing Activities

c) Financing Activities

Ans: a) Operating Activities

12. Dividend received by other than financial enterprise is shown in the cash flow statement under:

a) Operating Activities

b) Investing Activities

c) Financing Activities

Ans: b) Investing Activities

13. Cash from operating activities will decrease due to:

a) Payment of expenses

b) Payment of taxes

c) Payment to creditors

d) All of the above

Ans: d) All of the above

14. Cash and cash equivalents include:

a) Bank balance

b) Commercial paper

c) Short term government bonds

d) All of the above

Ans: d) All of the above

15. For a financial enterprise, an example of cash flow from operating activity is:

a) Purchase of own debenture.

b) Sale of fixed assets.

c) Interest paid on term - deposits

d) Issue of equity share capital.

Ans: c) Interest paid on term - deposits

16. Which of the following is not application of cash?

a) Redemption of debentures

b) Securities premium

c) Purchase of investments

d) Payment of dividends

Ans: b) Securities premium

17. In statement of cash flow, buy back of shares is shown under:

a) Operating Activities

b) Investing Activities

c) Financing Activities

Ans: c) Financing Activities

18. Which of the following statements about the statement of cash flows is not correct?

a) Cash flow statement is a part of financial statement

b) Cash flow statement is prepared on cash basis of accounts.

c) Cash flow statement is a substitute of cash account.     

d) Cash flow reports are generally prepared at the end of accounting year.     

Ans: c) Cash flow statement is a substitute of cash account.     

19. Which of the following activities will involve the cash received from royalties?

a) Operating Activities

b) Investing Activities

c) Financing Activities

Ans: a) Operating Activities

20. Cash flow statement according to AS 3 is mandatory to:

a) All listed companies

b) One Person Company

c) Small company

d) Dormant company

Ans: a) all listed companies

21. Cash flow from operating activities consists of:

a) Operating profit

b) Increase/Decrease in current assets

c) Increase/Decrease in current liabilities

d) All of the above

Ans: d) All of the above

22. Cash flow from investing activities consists of:

a) Acquisition or disposal of fixed assets

b) Acquisition or disposal of long term investments

c) Interest, dividend received on investments

d) All of the above

Ans: d) All of the above

23. Cash flow from financing activities consists of:

a) Issue or redemption of securities

b) Payment of interest and dividends on securities

c) Securities premium

d) All of the above

Ans: d) All of the above

24. The indirect method of preparing a statement of cash flows is also known as:

a) Balance sheet method

b) Reconciliation method

c) Reserve Method

d) Income statement method

Ans: b) Reconciliation method

25. While calculating cash flow from operating activities which will be added:

a) Increase in current liabilities

b) Decrease in current assets

c) Refund of taxes

d) All of the above

Ans: d) All of the above

Cash Flow Statements MCQs

Fill in the blanks:

1) The cash flows statement is a statement of inflows and outflows of cash and Cash Equivalents.

2) Cash comprises cash on hand and demand deposits with banks.

3) Cash Equivalents are short-term, highly liquid investments that are readily convertible cash.

4) The cash flow from operating activities is derived from the principle revenue producing activities of the organisation.

5) Increase in current asset is an outflow of cash.

6) Increase in current liability is an inflow of cash.

7) The definition of cash as used in cash flow statement includes cash and cash equivalents.

8) Cash flow statement is also known as statement of cash flows.

9) Difference of both sides of cash flow statement is the closing balance of cash and cash equivalents.

10) AS per accounting standard-3 cash flow is classified into operating, investing and financing activities.

11) In cash flows when a firm invests in fixed assets and short-term financial investments results in outflow of cash.

12) Cash receipts from royalties and commissions are operating cash inflows.

13) As per AS-3, cash flow statement is mandatory for all listed companies.

14) Cash generated by issue of debentures is cash flow from financing activities.

15) Increase in amount of debtors results in decrease in cash.

16) Increase in amount of creditors results in increase in cash.

17) Discounted cash flow is also known as time value of money.

18) Long-term cash flow improvement may not be achieved by reducing long term loans.

19) Acquisition and disposal of long term assets is included in investing activities.

20) Cash flow statement is useful for external analysis.

Cash Flow Statements MCQs

State whether the following statements are true or false:

1. Cash flow statement is useful for short-term financial planning.             True

2. Cash flow statement is based on accrual basis of accounting.      False, Cash Basis

3. Cash flow statement deals with flow of cash which includes cash equivalent as well as cash. True

4. Cash flow statement is a substitute of cash account.        False

5. Cash flow statement is a summary of cash receipts and disbursements during a certain period.            True

6. Cash flow statement is prepared as per AS-3 (Revised).   True

7. Cash flow statement is a part of financial statement.  True

8. There are two methods for preparing cash flow statement: (i) Direct method (ii) Indirect method.  True

9. Cash flow statement shows cash inflows and outflows from (i) Operating activities (ii) Investing activities (iii) Financing activities.                      True

10. Cash flow statement is concerned with changes in working capital position between two balance sheet dates.              False

11. Cash generated from trading operations is equal to the net profit as reported in the profit and loss account.          False

12. Operating activities are the revenue generating activities of the enterprise.    True

13. Financing activities constitute the purchase and sale of long term assets and other investments not included in cash and its equivalents.  False, Investing activities

14. Investing activities are activities that result in change in the share capital and borrowings of the enterprise. False, Financing Activities

15. The cash flows from extraordinary items are to be stated separately as arising from operating, investing and financing activities.                  True

16. Decrease in the amount of debtors results in increase in cash.  False

17. Increase in the amount of debtors results in decrease in cash.  True

18. Increase in the amount of creditors results in increase in cash. True

19. Cash lost in operations is not equal to the net loss as reported in the profit and loss account. True

20. Decrease in current liabilities is a source of cash.          False, it is an application

21. Cash flow reports are generally prepared at the end of accounting year.                     True

22. Cash flow reports are prepared on cash basis of accounting.     True

23. Cash flow statement is prepared from financial statements. True

24. Whenever there is inflow of cash there will definitely be inflow of funds though reverse is not true.            True

25. Cash proceeds from issue of debentures are shown under cash flow from investing activities. Is it correct? False, Financing activities

Cash Flow Statements - Sources and Applications of Cash

1. Which of the following is source of cash?

a) Issue of shares

b) Issue of debentures

c) Loans raised

d) Sale of fixed assets

e) Dividend received

f) Interest received

g) Cash Sales of goods

h) Receipts from debtors

i) Collection of securities premium

Ans: All of the above

2. Which of the following is application of cash?

a) Redemption of debentures

b) Repayment of loans

c) Purchase of fixed assets

d) Dividend paid

e) Interest paid

f) Cash purchase of goods

g) Cash paid to creditors

Ans: All of the above

Which of the following is cash flow from operating activities?

Ans: Examples of cash flow from operating activities:

a) Cash receipts from the sale of goods and rendering of services. (Source)

b) Cash receipts from royalties, fees, commission and other revenue. (Source)

c) Cash payments to suppliers of goods and services. (Application)

d) Cash payments to and on behalf of employees for wages, etc. (application)

e) Cash payments of taxes. (Application)

f) Refunds of income taxes (source)

Which of the following is cash flow from investing activities?

Ans: Examples of cash flow from investing activities:

a) Cash receipts from sale of shares, warrants, debt instruments of other enterprises and interest in joint ventures. (Source)

b) Cash receipts from repayments of advances and loans made to third parties. (Source)

c) Cash receipts from the disposal of long term fixed assets (including intangibles) and investments. (Source)

d) Cash payments to acquire long term fixed assets (tangible and intangible) and investments. (Application)

e) Cash payments for purchase or of shares, warrants, or debt instruments of other enterprises and interest in joint ventures. (Application)

Which of the following is cash flow from financing activities?

Ans: Example of cash flow from financing activities:

a) Cash proceeds from the issue of shares or other similar instruments. (Source)

b) Cash proceeds from the issue of debentures, loans, bonds and other short term borrowings. (Source)

c) Buy-back of equity shares. (Application)

d) Cash repayments of the amounts borrowed including redemption of debentures. (Application)

e) Payments of dividends and interest on borrowings. (Application)

Examples of operating activities for financial enterprises:

a) Interest received (source)

b) Interest paid (application)

c) Dividend received (Source)

d) Dividend paid (application)