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Cash Flow Quiz Q11–Q20

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Cash Flow Classification & Standards

Q11. Interest received by a finance company is classified under which activity while preparing a Cash Flow Statement?

Answer: Cash Flow from Operating Activities

Solution: For a finance company, interest received is part of core operations and is therefore classified as cash flow from operating activities. Classification depends on the entity's primary operations and policy.

Q12. Which of the following items is considered a cash equivalent?

Answer: Short-term Investment

Solution: Cash equivalents are short‑term, highly liquid investments readily convertible to known amounts of cash (e.g., treasury bills, commercial paper, short‑term investments with short maturities).

Q13. Which of the following is not considered a cash equivalent?

Answer: Investment

Solution: Generic "Investment" (long‑term or non‑short‑term) is not a cash equivalent. Commercial papers and treasury bills are cash equivalents when short‑term and highly liquid; bank overdraft is a liability, not a cash equivalent.

Q14. In the cash flow statement, the item 'Interest' is shown in:

Answer: Operating Activities

Solution: Under the indirect method, interest received/paid is commonly presented within operating activities. Standards allow flexibility; some entities classify interest as investing or financing depending on policy.

Q15. Cash Flow Statement is based upon:

Answer: Cash basis of accounting

Solution: The cash flow statement reports actual cash inflows and outflows (cash basis). It reconciles accrual‑based profit to cash movements, but the statement itself is prepared on a cash basis.

Q16. Cash Flow Statement is related to which IND AS?

Answer: IND AS-7

Solution: IND AS 7 (Statement of Cash Flows) provides guidance on preparation and presentation of the cash flow statement under Indian Accounting Standards.

Q17. Claims received from insurance companies are treated as:

Answer: Cash Flow from Investing Activities

Solution: Insurance claims received as compensation for loss of a non‑current asset are typically treated as investing cash inflows (proceeds related to asset disposal). Classification may vary by context.

Q18. Cash flow statement according to AS-3 is mandatory to:

Answer: (b) & (c) both

Solution: Historically, AS‑3 required cash flow statements for certain classes of enterprises (listed companies and larger enterprises). Regulatory thresholds and applicability may vary; (b) & (c) is the common exam answer.

Q19. In cash flow statement, the item of interest is shown in:

Answer: Both A and C

Solution: Standards allow interest to be classified either as operating or as investing/financing depending on the entity and presentation policy. Common practice: interest is often shown in operating activities, while interest related to investing transactions may be shown in investing activities — hence both A and C are acceptable depending on context.

Q20. Which of the following statements are true?

Answer: Only D

Solution: Cash flow statements show both inflows and outflows and are not substitutes for the income statement. They complement other statements. The correct statement among the options is that the cash flow statement is not a replacement for the funds flow statement (Only D).

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