Practice Test Geeks(CA) Chartered Certified Accountant Practice Test
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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

  1. Under US GAAP, dividends paid are classified in the cash flow statement as:

    Answer: Financing activities

    Under US GAAP, dividends paid to shareholders are classified as financing activities, as they represent returns to equity providers.

  2. A company has a cash flow adequacy ratio of 0.75. This indicates:

    Answer: Operating cash flows cover only 75% of annual debt service and capital needs

    A cash flow adequacy ratio below 1.0 signals the company cannot fully fund its debt obligations and capital expenditure needs from operations alone.

  3. Which of the following best describes the purpose of a rolling cash flow forecast?

    Answer: To continuously update the forecast horizon as each period passes

    A rolling forecast maintains a consistent forward-looking horizon (e.g., 13 weeks) by adding a new period as each one expires, keeping projections current.

  4. When a company sells accounts receivable to a factor without recourse, how is the transaction reflected on the cash flow statement?

    Answer: As an operating inflow (or financing, depending on substance)

    Factoring receivables without recourse generates immediate cash; depending on whether it transfers risks/rewards, it may be classified as operating or financing under substance-over-form rules.

  5. The Miller-Orr cash management model is used to:

    Answer: Determine optimal cash balance by setting upper and lower control limits

    The Miller-Orr model sets upper and lower cash balance limits; when cash hits either limit, the firm buys or sells securities to return to a target level.

  6. A decrease in deferred revenue is treated how in the indirect method operating section?

    Answer: Subtracted from net income

    A decrease in deferred revenue means previously collected cash is now recognized as revenue, so no new cash was received; it is subtracted from net income.

  7. Which short-term investment is most appropriate for a company's temporary excess cash that must remain highly liquid?

    Answer: Treasury bills or money market funds

    Treasury bills and money market funds offer high liquidity, capital preservation, and low risk — ideal for temporary surplus cash management.