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Cash Flow Statements Quiz

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Questions and Answers

What is the main purpose of the cash flow statement?

To show the cash profit or a cash increase under accrual basis accounting

To reflect day-to-day operations that determine the future of an organization

To present all sources and uses of cash flow during the fiscal year (correct)

To reconcile opening cash to ending cash from the balance sheet

What does cash on the balance sheet usually include?

Intangible assets such as goodwill

Long-term investments with high returns

Highly liquid, secure short-term investments maturing in three months or less (correct)

Illiquid assets with uncertain value

How does net income on the income statement relate to cash profit?

Net income is a direct reflection of cash profit

Net income is always equal to cash profit

Under accrual basis accounting, net income ≠ cash profit or a cash increase (correct)

Accrual basis accounting ensures net income equals cash profit

Which category of cash flows is considered the most important?

<p>Operating activities</p> Signup and view all the answers

What do operating activities affect?

<p>Net income on the income statement</p> Signup and view all the answers

Study Notes

Cash Flow Statement

The main purpose of the cash flow statement is to show the inflows and outflows of cash and cash equivalents over a specific period of time.

Balance Sheet

Cash on the balance sheet usually includes cash, bank accounts, and short-term, highly liquid investments that can be easily converted into cash.

Income Statement and Cash Profit

Net income on the income statement is an accrual-based measure of profitability, whereas cash profit refers to the actual cash generated from business operations.

Categories of Cash Flows

The most important category of cash flows is typically operating activities, as it represents the core business activities that generate cash.

Operating Activities

Operating activities, as reported on the cash flow statement, affect a company's ability to generate cash from its core business operations.

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Description

Test your knowledge of cash flow statements under IFRS and ASPE with this quiz. Explore the importance of positive cash flows for a company's operations and financial health. Evaluate your understanding of cash flow management and its impact on suppliers, employees, creditors, and dividends.