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Management Accounting Quiz Q1–Q10

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Cash Flow & Management Accounting

Q1. The basic financial statements include

Answer: All of the Above

Solution: The core set of financial statements typically comprises the Balance Sheet, Income Statement (Profit & Loss), Statement of Cash Flows and a Statement of Changes in Equity (which includes retained earnings).

Q2. Cash flow example from a financing activity is

Answer: Payment of Dividends

Solution: Financing activities include transactions with owners and lenders. Payment of dividends is a cash outflow to owners and is classified as a financing activity.

Q3. Cash flow example from an investing activity is

Answer: Sale of Investment by Non-Financial Enterprise

Solution: Investing activities relate to acquisition and disposal of long‑term assets and investments. Sale of investments by a non‑financial enterprise is an investing cash inflow.

Q4. Cash flow example from an operating activity is

Answer: Interest Paid on Term-deposits by a Bank

Solution: For financial institutions (banks), interest paid on term deposits is part of their core operating activities. Classification of interest depends on the entity's primary operations and applicable accounting standards.

Q5. Preparation of cash flow statement is:

Answer: Mandatory

Solution: Under most modern accounting frameworks and regulatory regimes, preparation of a cash flow statement is mandatory for entities preparing full financial statements (especially for listed companies and many statutory filings).

Q6. Cash from operating activities will decrease due to :

Answer: Both (a) and (b)

Solution: An increase in current assets (e.g., higher receivables or inventory) uses cash and reduces operating cash flow; a decrease in current liabilities (e.g., paying payables) also reduces operating cash flow.

Q7. While calculating operating profit which will be added to net profit:

Answer: Refund of Tax

Solution: When reconciling net profit to operating profit (or profit before interest and tax), adjustments are made for items that are non‑operating or relate to tax/finance. A tax refund increases profit and is therefore added back when isolating operating profit; non‑operating gains (like profit on sale of asset) are typically removed.

Q8. While calculating cash flow from operating activities which will be deducted ?

Answer: Increase in Debtors

Solution: Under the indirect method, an increase in debtors (accounts receivable) represents revenue recognized but not yet collected in cash, so it is deducted from net profit to arrive at cash from operating activities.

Q9. While calculating cash flow from operating activities, which will be added ?

Answer: Increase in Creditors

Solution: An increase in trade creditors (accounts payable) means purchases have been financed by suppliers and cash has not been paid — this is a source of cash and is added back to net profit in the operating section.

Q10. Where will you show purchase of goodwill in Cash Flow Statement:

Answer: Cash Flow from Investing Activities

Solution: Purchase of goodwill is an acquisition of an intangible non‑current asset and is therefore classified as an investing cash outflow in the cash flow statement.

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