Financial Statements: Balance Sheet, Income Statement, Cash Flow
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Questions and Answers

What is the main purpose of the income statement?

  • To show the company's financial position at a specific point in time
  • To report the company's financial performance over a specific period of time (correct)
  • To provide information about the company's cash flow
  • To illustrate sources of cash inflows

    • How can cash inflows be calculated besides directly tracking cash received?

  • By subtracting cash outflows from net profit
  • By increasing cash reserves for future investments
  • By excluding all non-cash expenses from calculations
  • By adding non-cash expenses to net after-tax profit (correct)

    • Why is it important for businesses to monitor cash inflows and outflows closely?

  • To understand stock market trends better
  • To determine the company's overall market share
  • To calculate depreciation and amortization accurately
  • To ensure cash balance is sufficient to meet obligations (correct)

    • Which financial statement provides a snapshot of a company's finances at a specific point in time?

    <p>Balance sheet</p> Signup and view all the answers

    When cash flows are stable and growing, what investment strategy becomes easier for businesses?

    <p>Investing in long-term stable assets</p> Signup and view all the answers

    Cash inflows for an entity can be calculated accurately by adding all non-cash expenses to its net after-tax profit.

    <p>False</p> Signup and view all the answers

    The balance sheet is not considered one of the main financial statements in a business.

    <p>False</p> Signup and view all the answers

    Businesses do not need to closely monitor cash inflows and outflows to ensure sufficient cash balance for expected obligations.

    <p>False</p> Signup and view all the answers

    It is harder for a business to invest excess cash in longer-term investments when cash flows are stable and increasing.

    <p>False</p> Signup and view all the answers

    The income statement provides information about a company's financial performance over a specified period of time.

    <p>True</p> Signup and view all the answers

    Cash flow statement is not an essential tool for businesses to manage their finances effectively.

    <p>False</p> Signup and view all the answers

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