MCQ questions on the topic of cash flow statement as per US GAAP:
Section A..... Difficult level.. simple
*1. What is the primary purpose of the cash flow statement?*
A) To report revenues and expenses
B) To report cash inflows and outflows
C) To report assets and liabilities
D) To report equity changes
Answer:
*2. Which of the following is a classification of cash flows under US GAAP?*
A) Operating, investing, and financing
B) Operating, investing, and non-operating
C) Investing, financing, and extraordinary
D) Operating, financing, and extraordinary
Answer:
*3. What is the method of preparing the cash flow statement that starts with net income and adjusts for non-cash items?*
A) Direct method
B) Indirect method
C) Accrual method
D) Cash method
Answer:
*4. Which of the following is an example of an operating cash flow?*
A) Purchase of equipment
B) Sale of investments
C) Payment of dividends
D) Collection of accounts receivable
Answer:
*5. Which of the following is an example of an investing cash flow?*
A) Purchase of equipment
B) Sale of investments
C) Payment of dividends
D) Collection of accounts receivable
Answer:
*6. Which of the following is an example of a financing cash flow?*
A) Payment of dividends
B) Sale of investments
C) Purchase of equipment
D) Collection of accounts receivable
Answer:
*7. What is the effect of an increase in accounts receivable on cash flows from operations?*
A) Increase
B) Decrease
C) No effect
D) Cannot be determined
Answer:
*8. What is the effect of an increase in accounts payable on cash flows from operations?*
A) Increase
B) Decrease
C) No effect
D) Cannot be determined
Answer:
Section B....
Here are 20 MCQ questions on Cash Flow Statement as per US GAAP (ASC 230) — moderately challenging level:
MCQs on Cash Flow Statement (US GAAP)
1. Under US GAAP, interest paid is classified as:
A. Operating
B. Financing
C. Investing
D. Either operating or financing
Answer:
2. Under US GAAP, dividends received are classified as:
A. Operating
B. Financing
C. Investing
D. Either operating or investing
Answer:
3. Under US GAAP, dividends paid are classified as:
A. Operating
B. Investing
C. Financing
D. Either operating or financing
Answer:
4. What is the required reconciliation when presenting indirect method?
A. Net income to Net cash from operating activities
B. Net income to Net assets
C. Net income to EBITDA
D. Cash to retained earnings
Answer:
5. Gain on sale of equipment in indirect method is:
A. Added to net income
B. Deducted from net income
C. Not adjusted
D. Treated as financing cash inflow
Answer:
6. Which of the following is considered an investing activity?
A. Purchase of PPE
B. Issuing common stock
C. Payment of salaries
D. Income tax paid
Answer:
7. A company issues bonds at par for cash. Classification?
A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash activity
Answer:
8. Non-cash transactions must be:
A. Excluded from cash flow statement and disclosed separately
B. Included in financing section
C. Included in investing section
D. Ignored completely
Answer:
9. Purchase of equipment by issuing shares is reported as:
A. Operating
B. Financing
C. Investing
D. Non-cash supplemental disclosure
Answer:
10. Under US GAAP, taxes paid are classified as:
A. Operating
B. Financing
C. Investing
D. Either operating or investing
Answer:
11. Under indirect method, an increase in accounts receivable is:
A. Added to net income
B. Deducted from net income
C. Financing activity
D. Investing activity
Answer:
12. Decrease in inventory in indirect method is:
A. Added to net income
B. Deducted from net income
C. Financing
D. Investing
Answer:
13. Proceeds from sale of land:
A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash inflow
Answer:
14. Amortization expense in indirect method is:
A. Added to net income
B. Deducted from net income
C. Investing activity
D. Financing activity
Answer:
15. Loss on early retirement of debt is treated as:
A. Added in operating
B. Deducted in operating
C. Financing cash flow
D. Investing cash flow
Answer:
16. Cash collected from customers is classified as:
A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash
Answer:
17. Under US GAAP, cash flows from trading securities purchases are reported under:
A. Operating
B. Investing
C. Financing
D. Supplemental schedule
Answer:
18. Cash paid to acquire another company is:
A. Operating
B. Investing
C. Financing
D. Non-cash
Answer:
19. Depreciation in operating section of indirect method appears as:
A. Cash outflow
B. Adjusted non-cash item added to net income
C. Financing activity reduction
D. Investing activity inflow
Answer:
20. What is the primary purpose of a Cash Flow Statement?
A. To show profitability
B. To show financial position
C. To report inflows and outflows classified into operating, investing, and financing
D. To show working capital changes
Answer:
Section C...Scenerio based questions, difficult level.. Difficult, exam based .Here are 5 challenging, scenario-based MCQs on the Cash Flow Statement under US GAAP, designed to test advanced classification, adjustments, and indirect/direct method knowledge. Each question presents a scenario requiring interpretation or calculation, as typical in professional exams:
***
## US GAAP Cash Flow Statement: Advanced MCQs
### Scenario 1: Indirect Method Adjustments
ABC Corp reports net income of $400,000 for the year. During this period, depreciation expense is $60,000, accounts receivable increase by $30,000, and accounts payable decrease by $18,000. What is ABC Corp’s cash flow from operating activities under the indirect method?
- a) $412,000
- b) $448,000
- c) $412,000
- d) $412,000
***
### Scenario 2: Classification of Dividends and Interest
XYZ Inc pays $25,000 in interest and receives $12,000 in dividends. According to US GAAP, how are these items classified in the cash flow statement?
- a) Both as investing activities
- b) Interest as operating, dividends as investing
- c) Interest as financing, dividends as investing
- d) Both as operating activities
***
### Scenario 3: Acquisition of Equipment
LMN Co purchases machinery for $150,000, paying $50,000 in cash and issuing a long-term note for $100,000. How should this transaction appear in the cash flow statement under US GAAP?
- a) $150,000 outflow from investing activities
- b) $50,000 outflow from investing activities and $100,000 outflow from financing activities
- c) $50,000 outflow from investing activities; $100,000 disclosed as non-cash transaction
- d) $150,000 disclosed in financing activities
***
### Scenario 4: Operating Activities (Direct Method)
During the year, PQR Corp received customer payments totaling $500,000, paid $180,000 to suppliers, and $70,000 for staff wages. What is the net cash flow from operating activities using the direct method?
- a) $250,000
- b) $430,000
- c) $320,000
- d) $500,000
***
### Scenario 5: Reporting Non-Cash Activities
STU Inc converts $200,000 of bonds payable into equity shares. How is this reported in the cash flow statement under US GAAP?
- a) Cash inflow from financing activities
- b) Cash outflow from operating activities
- c) Not reported in main statement; disclosed as non-cash transaction
- d) Included as investing activity outflow
***
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Answers........
MCQ questions with answers on the topic of cash flow statement as per US GAAP:
Section A..... Difficult level.. simple
*1. What is the primary purpose of the cash flow statement?*
A) To report revenues and expenses
B) To report cash inflows and outflows
C) To report assets and liabilities
D) To report equity changes
Answer: B) To report cash inflows and outflows
*2. Which of the following is a classification of cash flows under US GAAP?*
A) Operating, investing, and financing
B) Operating, investing, and non-operating
C) Investing, financing, and extraordinary
D) Operating, financing, and extraordinary
Answer: A) Operating, investing, and financing
*3. What is the method of preparing the cash flow statement that starts with net income and adjusts for non-cash items?*
A) Direct method
B) Indirect method
C) Accrual method
D) Cash method
Answer: B) Indirect method
*4. Which of the following is an example of an operating cash flow?*
A) Purchase of equipment
B) Sale of investments
C) Payment of dividends
D) Collection of accounts receivable
Answer: D) Collection of accounts receivable
*5. Which of the following is an example of an investing cash flow?*
A) Purchase of equipment
B) Sale of investments
C) Payment of dividends
D) Collection of accounts receivable
Answer: A) Purchase of equipment
*6. Which of the following is an example of a financing cash flow?*
A) Payment of dividends
B) Sale of investments
C) Purchase of equipment
D) Collection of accounts receivable
Answer: A) Payment of dividends
*7. What is the effect of an increase in accounts receivable on cash flows from operations?*
A) Increase
B) Decrease
C) No effect
D) Cannot be determined
Answer: B) Decrease
*8. What is the effect of an increase in accounts payable on cash flows from operations?*
A) Increase
B) Decrease
C) No effect
D) Cannot be determined
Answer: A) Increase
Section B....
Here are 20 MCQ questions with answers on Cash Flow Statement as per US GAAP (ASC 230) — moderately challenging level:
MCQs on Cash Flow Statement (US GAAP)
1. Under US GAAP, interest paid is classified as:
A. Operating
B. Financing
C. Investing
D. Either operating or financing
Answer: A — Operating
2. Under US GAAP, dividends received are classified as:
A. Operating
B. Financing
C. Investing
D. Either operating or investing
Answer: A — Operating
3. Under US GAAP, dividends paid are classified as:
A. Operating
B. Investing
C. Financing
D. Either operating or financing
Answer: C — Financing
4. What is the required reconciliation when presenting indirect method?
A. Net income to Net cash from operating activities
B. Net income to Net assets
C. Net income to EBITDA
D. Cash to retained earnings
Answer: A
5. Gain on sale of equipment in indirect method is:
A. Added to net income
B. Deducted from net income
C. Not adjusted
D. Treated as financing cash inflow
Answer: B — Deducted
6. Which of the following is considered an investing activity?
A. Purchase of PPE
B. Issuing common stock
C. Payment of salaries
D. Income tax paid
Answer: A
7. A company issues bonds at par for cash. Classification?
A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash activity
Answer: C
8. Non-cash transactions must be:
A. Excluded from cash flow statement and disclosed separately
B. Included in financing section
C. Included in investing section
D. Ignored completely
Answer: A
9. Purchase of equipment by issuing shares is reported as:
A. Operating
B. Financing
C. Investing
D. Non-cash supplemental disclosure
Answer: D
10. Under US GAAP, taxes paid are classified as:
A. Operating
B. Financing
C. Investing
D. Either operating or investing
Answer: A
11. Under indirect method, an increase in accounts receivable is:
A. Added to net income
B. Deducted from net income
C. Financing activity
D. Investing activity
Answer: B
12. Decrease in inventory in indirect method is:
A. Added to net income
B. Deducted from net income
C. Financing
D. Investing
Answer: A
13. Proceeds from sale of land:
A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash inflow
Answer: B
14. Amortization expense in indirect method is:
A. Added to net income
B. Deducted from net income
C. Investing activity
D. Financing activity
Answer: A
15. Loss on early retirement of debt is treated as:
A. Added in operating
B. Deducted in operating
C. Financing cash flow
D. Investing cash flow
Answer: A
16. Cash collected from customers is classified as:
A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash
Answer: A
17. Under US GAAP, cash flows from trading securities purchases are reported under:
A. Operating
B. Investing
C. Financing
D. Supplemental schedule
Answer: A
18. Cash paid to acquire another company is:
A. Operating
B. Investing
C. Financing
D. Non-cash
Answer: B
19. Depreciation in operating section of indirect method appears as:
A. Cash outflow
B. Adjusted non-cash item added to net income
C. Financing activity reduction
D. Investing activity inflow
Answer: B
20. What is the primary purpose of a Cash Flow Statement?
A. To show profitability
B. To show financial position
C. To report inflows and outflows classified into operating, investing, and financing
D. To show working capital changes
Answer: C
Section C....please give answers of above 5 questions
Here are the answers and brief explanations for the five advanced scenario-based cash flow statement MCQs:
***
## Answers and Explanations
**1. Indirect Method Adjustments**
*Answer:* a) $412,000
*Explanation:* Start with net income ($400,000)
+ Add depreciation ($60,000, non-cash)
– Subtract increase in accounts receivable ($30,000)
– Subtract decrease in accounts payable ($18,000)
Cash flow from operating = $400,000 + $60,000 – $30,000 – $18,000 = $412,000.
***
**2. Classification of Dividends and Interest**
*Answer:* b) Interest as operating, dividends as investing
*Explanation:* US GAAP classifies interest paid and received as operating cash flows, but dividends received can be investing. Dividends paid are financing.
***
**3. Acquisition of Equipment**
*Answer:* c) $50,000 outflow from investing activities; $100,000 disclosed as non-cash transaction
*Explanation:* Only cash outflow is reported under investing activities; non-cash financing arrangement is disclosed but not in main cash flow statement
***
**4. Operating Activities (Direct Method)**
*Answer:* a) $250,000
*Explanation:* Cash receipts ($500,000) – cash paid to suppliers ($180,000) – wages ($70,000) = $250,000
***
**5. Reporting Non-Cash Activities**
*Answer:* c) Not reported in main statement; disclosed as non-cash transaction
*Explanation:* US GAAP requires disclosure of significant non-cash investing/financing activities in a separate note/equivalent section
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