1. The cash flow statement provides information about:
a) Assets, liabilities, and equity
b) Revenue and expenses
c) Inflows and outflows of cash
d) Profit and loss
Answer: c
2. Which of the following is NOT a component of the cash flow statement?
a) Operating activities
b) Investing activities
c) Financing activities
d) Equity activities
Answer: d
3. The cash flow statement is prepared to provide insights into:
a) The profitability of the company
b) The liquidity and solvency of the company
c) The retained earnings of the company
d) The financial position at a specific point in time
Answer: b
4. Cash received from the sale of goods falls under which activity?
a) Operating activities
b) Investing activities
c) Financing activities
d) None of the above
Answer: a
5. Which of the following is classified as an investing activity?
a) Payment of dividends
b) Purchase of machinery
c) Issuance of shares
d) Interest paid on loans
Answer: b
6. The two methods of preparing the cash flow statement are:
a) Direct and Indirect
b) Manual and Automated
c) Operating and Non-operating
d) Horizontal and Vertical
Answer: a
7. Which method starts with net income and adjusts for changes in working capital?
a) Direct method
b) Indirect method
c) Both
d) None of the above
Answer: b
8. Which of the following is NOT included in the direct method of preparing a cash flow statement?
a) Cash received from customers
b) Cash paid to suppliers
c) Adjustments for depreciation
d) Cash paid for wages
Answer: c
9. Depreciation is added back to net income in the indirect method because:
a) It is an investing activity
b) It does not affect cash
c) It is a financing activity
d) It is treated as a cash inflow
Answer: b
10. Changes in accounts receivable are part of which activity in the cash flow statement?
a) Operating activities
b) Investing activities
c) Financing activities
d) None of the above
Answer: a
11. Interest paid is classified under which activity?
a) Operating
b) Investing
c) Financing
d) None of the above
Answer: a
12. Which of the following is NOT considered an operating activity?
a) Payment to suppliers
b) Interest received
c) Purchase of land
d) Tax payments
Answer: c
13. Which is NOT an adjustment in the operating section using the indirect method?
a) Depreciation expense
b) Gain on sale of equipment
c) Changes in inventory
d) Dividends paid
Answer: d
14. Cash paid for wages is classified as:
a) Operating cash outflow
b) Investing cash outflow
c) Financing cash outflow
d) Non-cash item
Answer: a
15. If accounts payable increase, what is its effect on cash flow?
a) Increase cash flow
b) Decrease cash flow
c) No effect
d) None of the above
Answer: a
16. Cash flows from investing activities include:
a) Sale of fixed assets
b) Payment of dividends
c) Issuance of shares
d) Repayment of loans
Answer: a
17. Cash outflow from investing activities arises due to:
a) Payment of interest
b) Purchase of machinery
c) Issuance of bonds
d) Depreciation adjustment
Answer: b
18. Proceeds from the sale of equipment are classified under:
a) Operating activities
b) Investing activities
c) Financing activities
d) None of the above
Answer: b
19. Which of the following is NOT included in investing activities?
a) Purchase of land
b) Sale of investments
c) Depreciation of machinery
d) Purchase of bonds
Answer: c
20. Cash used to purchase securities is classified as:
a) Financing activity
b) Operating activity
c) Investing activity
d) None of the above
Answer: c
Analysis of Financial Statements mcq
Accounting and Finance Most Important Formulas
21. Which of the following is considered a financing activity?
a) Payment of dividends
b) Sale of goods
c) Purchase of machinery
d) Payment of taxes
Answer: a
22. Cash flows from issuing shares are classified as:
a) Operating activity
b) Investing activity
c) Financing activity
d) None of the above
Answer: c
23. Repayment of loans is classified under:
a) Operating activities
b) Investing activities
c) Financing activities
d) None of the above
Answer: c
24. Which of the following is a cash inflow from financing activities?
a) Receipt of dividend income
b) Proceeds from issuing debt
c) Purchase of inventory
d) Payment for new equipment
Answer: b
25. Payment of dividends is classified under which activity?
a) Operating activities
b) Investing activities
c) Financing activities
d) None of the above
Answer: c
26. A positive cash flow from operating activities indicates:
a) High profits
b) Liquidity issues
c) Efficient core operations
d) Increased debt
Answer: c
27. A company with negative cash flow from investing activities typically indicates:
a) Poor profitability
b) Reduced liabilities
c) Growth through asset purchases
d) Cash shortages
Answer: c
28. Net cash flow is the difference between:
a) Total inflows and total outflows
b) Operating and financing activities
c) Assets and liabilities
d) Cash and accruals
Answer: a
29. An increase in inventory reduces cash flow because:
a) It is a cash inflow
b) It represents cash spent
c) It is an expense
d) None of the above
Answer: b
30. What is the primary purpose of analyzing cash flow?
a) To determine profits
b) To assess liquidity
c) To analyze asset structure
d) To calculate net worth
Answer: b
31. Which accounting standard governs the preparation of cash flow statements?
a) IFRS 3
b) IAS 7
c) GAAP 11
d) None of the above
Answer: b
32. Which section includes cash flows related to short-term borrowing?
a) Operating activities
b) Financing activities
c) Investing activities
d) None of the above
Answer: b
33. An increase in cash and cash equivalents is due to:
a) Only operating activities
b) A combination of all three activities
c) Financing activities alone
d) None of the above
Answer: b
34. Which of the following does NOT directly affect cash flow?
a) Depreciation
b) Issuance of shares
c) Loan repayments
d) Equipment purchases
Answer: a
35. What is the primary distinction between direct and indirect methods?
a) Treatment of financing activities
b) Presentation of operating activities
c) Inclusion of cash equivalents
d) None of the above
Answer: b
36. Cash flow from operations focuses on:
a) Core business activities
b) Financing costs
c) Long-term investments
d) Dividend policies
Answer: a
37. Free cash flow is:
a) Net cash from financing activities
b) Operating cash flow minus capital expenditures
c) Total inflows minus outflows
d) None of the above
Answer: b
38. Non-cash transactions are typically:
a) Recorded in the financing section
b) Not included in the cash flow statement
c) Included in operating activities
d) Reflected in cash inflows
Answer: b
39. An example of a non-cash transaction is:
a) Depreciation expense
b) Cash purchase of inventory
c) Payment of dividends
d) Receipt of loan repayments
Answer: a
40. A decrease in accounts payable results in:
a) Cash inflow
b) Cash outflow
c) No effect on cash
d) None of the above
Answer: b
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