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Questions and Answers
Which of the following statements is true?
Which of the following statements is true?
- A company can be profitable even with negative cash flows. (correct)
- Expenses are always paid for before being accounted for.
- Revenue and cash flow are always earned and received simultaneously.
- A company's profits are always based on cash received
What is the purpose of depreciation?
What is the purpose of depreciation?
- To spread the cost of a long-term asset over its useful life (correct)
- To increase a company's profits
- To increase a company's net cash flow
- To decrease a company's expenses
Why is cash flow critical to a company's survival?
Why is cash flow critical to a company's survival?
- To pay for expenses before they are incurred
- To increase a company's profits
- To keep the company operating (correct)
- To generate revenue from sales
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.
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Description
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.
