$$\text{Change in Cash} = \text{Cash at End of Year} - \text{Cash at Beginning of Year}$$

$$\text{Net Income} + \text{Non-cash Expenses} - \text{Non-cash Revenues} + \text{Changes in Working Capital}$$

Question 1

Which of the following best explains why a company can report rising net income but still go bankrupt, as illustrated by the Lehman Brothers case?

Accepted Answer

Positive net income does not guarantee sufficient cash flow to meet obligations.

Question 2

Which section of the Statement of Cash Flows would the purchase of property, plant, and equipment be classified under?

Accepted Answer

Investing activities

Question 3

A company receives proceeds from issuing new shares. Under which section of the Statement of Cash Flows is this recorded?

Accepted Answer

Financing activities

Question 4

Which of the following is NOT considered a cash equivalent?

Accepted Answer

Accounts receivable

Question 5

If a company pays dividends to shareholders, how is this reflected in the Statement of Cash Flows?

Accepted Answer

Cash outflow from financing activities

Question 6

Which formula correctly calculates the change in cash for a period using the Statement of Cash Flows?

Accepted Answer

$$	ext{Change in Cash} = 	ext{Cash at End of Year} - 	ext{Cash at Beginning of Year}$$

Question 7

Which of the following is an example of a cash inflow from operating activities?

Accepted Answer

Revenue from sales of goods

Question 8

A company repays the principal on a long-term loan. How is this transaction classified in the Statement of Cash Flows?

Accepted Answer

Cash outflow from financing activities

Question 9

Which of the following best describes the purpose of the Summary Table in cash flow analysis?

Accepted Answer

It shows cash inflows and outflows as percentages of total inflows and outflows.

Question 10

Which equation represents the indirect method for calculating cash flows from operating activities?

Accepted Answer

$$	ext{Net Income} + 	ext{Non-cash Expenses} - 	ext{Non-cash Revenues} + 	ext{Changes in Working Capital}$$

Question 11

Which of the following would be classified as a cash outflow from investing activities?

Accepted Answer

Acquisition of another company

Question 12

Why is it generally best to finance short-term assets with short-term debt?

Accepted Answer

Short-term assets are more liquid and match the maturity of short-term debt.

Question 13

Which of the following is a cash inflow from financing activities?

Accepted Answer

Proceeds from share issues

Question 14

If a company increases its accounts receivable, what is the effect on cash flow from operating activities?

Accepted Answer

Decrease in cash flow

Question 15

Which of the following is NOT a typical adjustment to reconcile net income to cash flow from operating activities?

Accepted Answer

Capital expenditures

Question 16

A company sells a subsidiary for cash. How is this transaction reflected in the Statement of Cash Flows?

Accepted Answer

Cash inflow from investing activities

Question 17

Which of the following is a real-world implication of failing to generate cash from operations, even if net income is positive?

Accepted Answer

The company may need to borrow or sell assets to cover cash shortfalls.

Question 18

Which of the following is a cash outflow from operating activities?

Accepted Answer

Purchase of inventory

Question 19

In the context of the Statement of Cash Flows, what is the main analytical value of the summary table?

Accepted Answer

It helps identify the proportion of cash generated internally versus externally.

Question 20

Which of the following would be considered a cash inflow from investing activities?

Accepted Answer

Proceeds from sale of securities of other companies

Statement of Cash Flows: Structure, Analysis, and Application

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