Short Questions of Cash Flow Statement

1. What do you mean by cash flow statement?

Answer-: Cash flow is the flow of cash into and out of a business. Cash flow statement is a statement that shows an enterprise’s inflows and outflows of cash during a accounting period.

2. Why is cash flow statement prepared?

Answer-: A cash flow statement is prepared to reconcile the opening and closing cash balance of an accounting period. Cash flow statements are considered to provide more useful information to the users than fund flow statement.

3. Define Cash.

Answer-: Cash comprised cash in hand and demand deposits with banks.

4. Define cash equivalents.

Answer-: Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

5. What do you mean by ‘operating activities’?

Answer-: Operating activities are the principle revenue-producing activities of an enterprise and other activities that are not investing and financing activities.

6. What do you mean by ‘financing activities’?

Answer-: Financing activities are activities that result in changes in the size and composition of the owners’ capital (including preference share capital in the case of company) and borrowings of the enterprise.

7. What do you mean ‘investing activities’?

Answer-: Investing activities are the acquisition and disposal of long term-assets not included in cash equivalents.

8. Give two example of cash flow from operating activities.

Answer-: Cash flows from operating activities are derived from the principle revenue-producing activities of the enterprises.

The examples are:

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

(b) Cash receipts from royalties, fees commissions and other revenue;

9. Give two example of cash flow from investing activities.

Answer-: Examples of cash flows arising from investing activities are:

(a) Cash payments to acquire fixed assets (including intangibles). These payments include those relating to capitalized research and development cost and self-constructed fixed assets;

(b) Cash receipts from disposal of fixed assets (including intangibles);