Cash Flow Statements

Working Capital WC = Current Assets – Current Liabilities Inventory increase means cash spentReceivables decrease means cash receivedPayables decrease means cash spent

Revenues that are not receipts Sales that are made during this period, but the money is not received until the next period Discount allowed by suppliers for settling accounts promptly Reduction in a provision

Expenses that are not payments Depreciation and amortization Expenses incurred this period but which are not paid for until the next period Creating a provision Increase in a provision for bad debts Discount allowed to customers for settling their accounts promptly

Receipts of cash that are not revenues Sale of non-current assets Borrowing money Proceeds from issuing shares Receipts from receivables this period in respect of sales for the previous period

Payments of cash that are not expenses Purchase of non-current assets Investing in other companies Repaying loans Payments to buy stocks of goods that are not sold until the next period Payments to creditors for expenses incurred in the previous period

25. Which of the following statements is false? A. Payment for inventory not sold until the next period, is an example of a payment of cash which is not an expense B. Borrowing money is an example of a receipt of cash which is not revenue C. Discount allowed to customers for prompt payment, is an expense that is treated as a payment of cash D. Depreciation is an expense which is not a payment of cash    Answer : C

24. Which of the following statements is false? A. Not all payments of cash are expenses B. Some payments are not charged against profits C. Some receipts do not add to cash D. All revenues are receipts of cash   Answer : D

22. From the following information, calculate the cash flow from operating activities:A. £59,000 net cash inflow B. £187,000 net cash inflow C. £119,000 net cash inflow D. £99,000 net cash inflow Answer : B

20. Using the following information, calculate the cash flow from operating activities: Cash from trade receivables £80,000, cash sales £30,000; depreciation expense £3,000; rent paid £2,000 A. £105,000 net cash inflow from operating activities B. £110,000 net cash inflow from operating activities C. £108,000 net cash inflow from operating activities D. £110,000 net cash outflow from operating activities   Answer : C

19. Using the following information, calculate the cash flow from investing activities: Disposal of fixed assets for £9,000, with a gain of £1,000; purchase of machine for £11,000; pay-off mortgage £3,000; dividends paid £20,000 A. £4,000 net cash outflow from investing activities B. 24,000 net cash outflow from investing activities C. 5,000 net cash inflow from investing activities D. 5,000 net cash outflow from investing activities   Answer : D

18. If the opening balance on accounts receivable was £35,000 with a closing balance of £15,000 and the income statement reported revenue of £180,000, what is the cash collected from customers? A. £195,000 B. £200,000 C. £20,000 D. £145,000    Answer : B

17. Riff Raff plc reported the following cash flow information for year 2010:Which of the following balance sheet extracts for Riff Raff plc is correct? Answer : BABCD

16. B. Scott Ltd reported the following cash flow information for year 2010:Which of the following balance sheet extracts for B. Scott Ltd is correct? Answer : AABCD

21. From the following information, calculate the cash flow from operating activities:A. £80,000 net cash inflow B. £70,000 net cash inflow C. £75,000 net cash inflow D. £110,000 net cash inflow Answer : A

14. Which of the following would not be included on the operating activity section of a cash flow statement? A. Payment to suppliers B. Purchase of inventory C. Payment of loan D. Payment of tax   Answer : C

13. Which of the following would be classified as an operating activity on a cash flow statement? A. Purchase of a building B. Purchase of inventory C. Repayment of loan D. Issue of shares    Answer : B

23. If net cash from operating activities is £350,000 and the dividend paid is £140,000, what is the dividend cover? A. 0.4 times B. 2.5 times C. 1.6 times D. 0.6 times   Answer : B

11. Which of the following statements is false? A. An increase in trade receivables is treated as an outflow of cash B. Interest paid is an outflow of cash C. An increase in trade payables is treated as an outflow of cash D. An increase in inventory is treated as an outflow of cash   Answer : C

10. Which of the following statements is false? A. Not all revenues are receipts of cash B. Some receipts of cash do not add to profits C. Not all expenses are payments of cash D. All payments of cash are expenses   Answer : D

9. An increase in working capital would appear on the cash flow statement as a: A. Financing activity B. Operating activity C. Investing activity D. Debt activity   Answer : B

7. The redemption of a loan would appear on the cash flow statement as a: A. Financing activity B. Operating activity C. Investing activity D. Debt activity   Answer : A

8. The purchase of fixed assets would appear on the cash flow statement as a: A. Financing activity B. Operating activity C. Investing activity D. Debt activity   Answer : C

7. The redemption of a loan would appear on the cash flow statement as a: A. Financing activity B. Operating activity C. Investing activity D. Debt activity   Answer : C

6. The cash flow statement reports inflows and outflows of cash under which three headings? A. Operating activities, investing activities and expense activities B. Operating activities, investing activities and equity activities C. Operating activities, investing activities and finance activities D. Operating activities, investing activities and debt activities   Answer : C

5. The statement of financial position and income statement are based on the accruals concept TRUE

4. The annual depreciation expense is an outflow of cash FALSE

3. Generating lots of cash is a definite sign of success FALSE

2. Not all revenues are receipts of cash TRUE

1. All receipts of cash are treated as revenues FALSE