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Funds Flow & Cash Flow Quiz Q21–Q30

Click any option to reveal the correct answer and a short explanation

Questions

Q21. Cash flow statement is based upon ______ while Funds Flow Statement recognizes ______.

Answer: Cash basis of accounting, accrual basis of accounting

Solution: Cash flow statements report actual cash receipts and payments (cash basis). Funds flow statements focus on changes in working capital and financing sources, reflecting accrual-based movements between balance sheets.

Q22. Statement of changes in working capital is prepared separately in:

Answer: Funds Flow Statement

Solution: Funds flow analysis explicitly prepares a statement of changes in working capital to show sources and uses of funds; cash flow statements present cash movements and do not always show a separate working capital schedule in the same way.

Q23. Cash flow from sales is calculated by:

Answer: Both a and b

Solution: Cash flow from sales can be computed directly as cash sales plus cash collections from debtors, or derived by adjusting total sales for changes in receivables (opening/closing debtors and bills receivable).

Q24. Cash outflow on purchases is calculated by:

Answer: Purchases + Opening Creditors + Opening B/P – Closing Creditors - Closing B/P

Solution: Cash paid to suppliers equals purchases adjusted for changes in trade creditors and bills payable: add opening payables and subtract closing payables to convert credit purchases into cash outflows.

Q25. Which of the following are added to net profit after tax and extraordinary items to reach net profit before tax and extraordinary items?

Answer: Both A and C

Solution: To move from after‑tax profit back to before‑tax profit you add back tax provisions. In some practical adjustments interim dividends (if treated as appropriation in the period) are also reversed when reconciling between after‑tax and before‑tax figures; exam keys commonly pair A and C in this context.

Q26. Which of the following represent examples of cash flow from investing activities?

Answer: Cash advances and loans made to third parties

Solution: For non‑financial enterprises, lending to third parties or making long‑term advances is an investing activity. For financial enterprises, lending is part of core operations and is classified differently (operating).

Q27. In case of other enterprises cash flow arising from interest paid should be classified as ______ while dividends and interest received should be stated as ______.

Answer: Financing activities, investing activities

Solution: For non‑financial enterprises, interest paid is commonly presented as a financing cash flow (cost of borrowing), while dividends and interest received are typically investing cash inflows (returns on investments).

Q28. When a fixed asset is bought as hire purchase, interest element is classified under ______ and loan element is classified under ______.

Answer: Operating activities, financing activities

Solution: The interest portion of hire‑purchase payments is typically treated as an operating cash outflow (interest expense), while the principal (loan) element is a financing cash flow (repayment of finance).

Q29. Which of the following statements are false?

Answer: B, C, D

Solution: Statement analysis: (B) "Cash flow statement is a substitute for cash account" is false; (C) "Appropriation of retained earnings is not shown in Cash flow statement" — many exam keys treat appropriation as not shown (but some confusion exists), and (D) "Net cash flow during a period can never be negative" is false. These items are commonly flagged as false in standard MCQ keys.

Q30. Funds flow statement is prepared on the basis of:

Answer: The balance sheet of the previous and current year

Solution: Funds flow statements are prepared by analyzing changes between two balance sheets (current and previous year) to identify sources and uses of funds during the period.

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© Teal Coral Clean • Funds Flow & Cash Flow Quiz

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