Cash Flow Management Flashcards
7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cash Flow Management flashcards as text
Under IAS 7, which of the following is classified as a financing activity?
Answer: Payment of dividends to shareholders
IAS 7 classifies dividends paid to shareholders as financing activities because they represent cash flows related to the entity's capital structure.
A company has net income of $500,000, depreciation of $80,000, an increase in accounts receivable of $30,000, and a decrease in accounts payable of $20,000. What is the net cash from operating activities using the indirect method?
Answer: $530,000
$500,000 + $80,000 (add back non-cash) - $30,000 (AR increase uses cash) - $20,000 (AP decrease uses cash) = $530,000.
Which cash flow statement presentation method shows individual cash receipts and payments from operating activities?
Answer: Direct method
The direct method lists actual cash inflows and outflows from operations, such as cash received from customers and cash paid to suppliers.
A company's cash conversion cycle is calculated as Days Sales Outstanding plus Days Inventory Outstanding minus:
Answer: Days Payable Outstanding
The cash conversion cycle (CCC) = DSO + DIO - DPO, measuring how long cash is tied up in the operating cycle.
Under the indirect method, how is an increase in prepaid expenses treated in the operating activities section?
Answer: Subtracted from net income
An increase in prepaid expenses represents cash paid but not yet expensed, so it is subtracted from net income to arrive at operating cash flow.
Which of the following best describes 'free cash flow'?
Answer: Operating cash flow minus capital expenditures
Free cash flow = Operating cash flow - Capital expenditures, representing cash available after maintaining/expanding the asset base.
A manufacturing firm experiences a $150,000 increase in inventory during the period. How does this affect the cash flow statement using the indirect method?
Answer: Decrease operating cash flow by $150,000
An inventory increase means the company spent cash to build stock that hasn't been sold yet, reducing operating cash flow by $150,000.