About Cash Flow

A company's cash flow may be described as the movement of money in and out of the business. Expenses and revenues are two sides of the same coin for businesses. Selling things on credit with the expectation of receiving payment at a later date may also be a source of revenue for these individuals

Definition of Cash Flow

A company's net cash and cash equivalents coming in and going out is referred to as its cash flow. Inflows and outflows are represented by the amount of money received and the amount of money expended. Free cash flow or long-term free cash flow are the two most important factors in determining a company's potential to produce value for shareholders (FCF). Cash flow created by a company's regular operations after deducting capital expenditures is referred to as FCF (CapEx).

Types of Cash Flow

  1. Operating cash flow (CFO) or cash flows from operations: represents the money flows engaged directly in the production and sale of items from regular activities.
  2. CFI (Cash Flow from Investment) or Investing Cash Flow: The net cash flows used to fund the firm and its capital are shown in the cash flows from financing (CFF), also known as the financing cash flow.
  3. Cash flows from financing (CFF), or financing cash flow: The net cash flows utilized to fund the firm and its capital are shown in this statement.

Analyzing Cash Flows

With the support of other financial documents, analysts and investors may come up with numerous metrics and ratios that can be utilized to make educated judgments and recommendations.


One of the most significant goals of financial reporting is to assess the quantity, timing, and unpredictability of cash flows, as well as where they begin and where they end up. Liquidity, adaptability, and overall financial success are all evaluated using this metric.

Following are some of the multiple choice questions on the Cash Flow with answers that will help the students in developing their knowledge.

Cash Flow MCQ

1. Which one of the following ISN’T a way of cash outflow?

  • Purchasing goods & services
  • Paying wages, salaries and expenses
  • Paying creditors
  • Borrowing money from external sources

2. If a cashflow forecast suggests that a firm will run out of cash, which would help the problem?

  • purchase more fixed assets
  • repay a bank loan
  • pay suppliers immediately
  • delay paying suppliers

3. The future plan of all money transactions for a specific time frame

  • cash flow statement
  • cash flow projection

4. Which accounting standard is applicable while preparing a cash flow statement ?

  • AS-4
  • AS-3 
  • AS-3(Revised) 
  • Schedule  III 

5. While preparing a cash flow statement business activities are classified into ?

  • 03 categories
  • 06 categories
  • 04 categories
  • 02 categories 

6. Cash Flow Statement is based upon

  • Cash basis of accounting
  • Accrual basis of accounting
  • Credit basis of accounting 
  • None of the above

7. Which of the following statements are false?A) Cash Flow Statement is helpful in the formation of policies.B) Cash Flow Statement is useful for external analysisC) Cash Flow Statement is helpful in estimating future cash flow

  • Both A and B
  • Both A and C
  • Both B and C 
  • None of the above

8. Which one of the following is an example of an outflow?

  • Capital 
  • Bank Loan
  • Wages 
  • Government Grant

9. How much cash is received from the investment of a business owner, cash received from a bank loan, and the cash paid for a bank loan.

  • Operating Activities
  • Financing Activities
  • Investing Activities
  • None of these

10. How much cash a business generates from selling a non-current asset or how much they spend to acquire a non-current asset

  • Operating Activities
  • Financing Activities
  • Investing Activities
  • All of above

11. How much cash a business generates from it's core business operations - selling products or services

  • Operating Activities
  • Financing Activities
  • Investing Activities
  • Both A & B

12. Money received from a business investor would be an example of

  • cash inflow
  • cash outflow

13. The amount of cash moving into and out of a business

  • Cash Flow
  • Net Worth

14. Purchasing an asset would be an example of

  • cash inflow
  • cash outflow

15. Ideally, the net cash flow should be

  • positive
  • negative

16. Shows the total change in cash from operating, investing, and financing activities

  • Beginning Cash Balance
  • Net Cash Flows
  • Ending Cash Balance
  • All of above

17. The term _________ describes how efficiently an asset can be converted intocash.

  • Liquidity
  • Solvency
  • Conversion rate
  • Working capital cycle

18. Assume a firm sells goods costing £40,000 for £55,000. It provides the customerwith 70% trade credit (i.e. the customer pays only 30% of the price as a downpayment). The profit earned is __________, and the cash received is _________.

  • £15,000, £12,000
  • £15,000, £16,500
  • £15,000, £28,000
  • £15,000, £55,000

19. Cash inflows less than cash outflows =

  • Positive cash flow
  • Insolvency

20. What is the purpose of a cash flow forecast?

  • To calculate profit or loss
  • To find out whether a business has enough cash to pay their bills
  • To find out when customers are going to pay their invoices
  • To see if the business will break even

21. When a company spends $200 total on production. If they earn $500 in total revenue at a price of $50 per unit, then what is the company's average total cost of production for each unit?

  • $20
  • $50
  • $30
  • $10

22. A firm produces 500 units at a total cost of $2,000. What is their average total cost of production?

  • $4 per unit
  • $5 per unit
  • $3 per unit
  • $2 per unit

23. If a company sells 400 units of their product at an average price of $15 per unit, what is their total revenue?

  • $6,000
  • $4,500
  • $4,000
  • $7,500

24. The price of a product is $10, and the average total cost is $7. If the company produces and sells 25 units of the product, then what is their economic profit?

  • $2,500
  • $175
  • $75
  • $750

25. When a company increases production from 4 to 7 units, total revenue increases from $240 to $360. What is the marginal revenue (MR) of the last unit sold?

  • $30
  • $40
  • $51.50
  • $60.25

26. If a company earns $200 in total revenue when they produce 40 units, and they earn $40 in economic profit, then what is the company's average total cost per unit of production?

  • $4
  • $5
  • $10
  • $40

27. The total cost for a company is $50. If the total variable cost is $20, then what is the total fixed cost for the company?

  • $20
  • $30
  • $40
  • $10

28. Apple's 2016 revenue was $214.23 billion, and their net income (profit) was $45.69 billion. What was Apples total cost in 2016?

  • $168.54 billion
  • $157.24 billion
  • $172.53 billion
  • $161.51 billion

29. When a company produces one extra unit, their total cost increases from $7,500 to $8,000. What is the marginal cost of producing that extra unit?

  • $500
  • $8,000
  • $7,500
  • $250

30. A company hires 3 workers for a day for $250 each, spends $400 on materials for the day, and pays a fixed daily rent of $100. What is the company's total cost for this day of operations?

  • $1,250
  • $750
  • $1,000
  • $1,150

31. Which of these is NOT a goal of the cash flow forecast?

  • Start up a business
  • Run an existing business
  • Be 100% accurate
  • Keep the bank informed

32. How is it called when a Business runs out of cash?

  • Inflow
  • Insolvency
  • Insufficiency
  • Inaccuracy

33. Which of these ISN’T a way of holding working capital?

  • Cash
  • A company car
  • Debtors
  • Inventories

34. Which of the following ISN'T a cash flow problem?

  • Higher cash inflow than cash outflow
  • Sudden fall in sales
  • Unforeseen expenses
  • Debtors payback period is too long

35. What means "cash flow as a liquid asset"?

  • That it assess a company's profitability.
  • That is immediately available for spending on goods and services.
  • That it includes all purchases of capital assets and investments in other business ventures.
  • That it represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

36. Which one of these is NOT a type of activity presented on the statement of cash flows?

  • Producing.
  • Investing.
  • Operating.
  • Financing.

37. Why is the cash flow forecast important?

  • To know if the business is holding too much cash that could be used in a more profitable way.
  • To know how much money ask the bank for.
  • To help the manger to know the available cash to pay/purchase.
  • All the above.

38. Which one is the working capital formula?

  • Working capital = cash received - cash spent.
  • Working capital = current assets - current liabilities.
  • Working capital = operating cash flow - capital expenditures.
  • All of above

39. You can have negative Net Worth.

  • True
  • False

40. What is an Asset?

  • debts you owe
  • anything you borrow
  • anything you own that has value
  • None of these

41. Property owned by a person or company, regarded as having value is an __________

  • asset
  • liability
  • net worth
  • pizza

42. What is a Liability ?

  • anything you own that has value
  • debts you owe
  • something you borrow
  • None of these

43. Bills and Loans are examples of ________?

  • Assets
  • Liabilities
  • Net worth
  • Pickles

44. Which are examples of expenses?

  • Rent/Mortgage
  • Car Insurance
  • Credit Card debt
  • All of above

45. A thing for which someone is responsible, especially a debt or financial obligation is a _____.

  • asset
  • liability
  • net worth
  • bacon

46. What is another word for Wealth?

  • Rich
  • Net Worth
  • Wealthy
  • All of above

47. Asset-Liabilities=

  • Net Worth/Wealth
  • Cash Flow
  • Income
  • Expenses

48. How do you build wealth

  • Manage your asset and liabilities
  • Managing your expenses

49. What is cash flow?

  • The Route of Funds
  • Money that comes and goes
  • Money that goes from business to business
  • All of above

50. Why is the cash flow important?

  • To know the available cash you have
  • To know if the business/individual is being efficient with its cash
  • To avoid negative balances
  • All are correct

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