3 Questions
Which of the following statements is true?
A company can be profitable even with negative cash flows.
What is the purpose of depreciation?
To spread the cost of a long-term asset over its useful life
Why is cash flow critical to a company's survival?
To keep the company operating
Study Notes
- The income statement shows profit, but not net cash flow.
- Revenue is earned when a sale is identified, but cash flow may come later.
- Expenses may be accounted for without being paid or paid for before being incurred.
- Profits are measured on an accrual basis, not based on cash received.
- Long-term assets are expensed over their useful life through depreciation.
- A company must generate cash to keep operating, not just profits.
- A company can be profitable but have negative cash flows.
- A company cannot survive long with negative cash flows.
- Negative cash flows can cause a company to become bankrupt.
- Cash flow is critical to a company's survival.
Do you know the difference between profit and cash flow? Test your knowledge with our quiz on the basics of cash flow. Learn about the importance of generating cash, the impact of negative cash flows on a company's survival, and the relationship between revenue, expenses, and profits. This quiz will help you understand why cash flow is a critical aspect of any business, and why companies need to keep a close eye on their cash position.
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