CA Cash Flow Management 3

Question 1

Which ratio measures how efficiently a company converts its net income into actual cash flow from operations?

Accepted Answer

Cash flow to net income ratio

Answer

The cash flow to net income ratio (operating cash flow ÷ net income) reveals the quality of earnings and how much income becomes actual cash.

Question 2

Under IAS 7, interest received by a financial institution is classified as which type of cash flow activity?

Accepted Answer

Operating

Answer

For financial institutions, interest received is part of the core business and therefore classified as an operating cash flow under IAS 7.

Question 3

A company uses a lockbox system primarily to:

Accepted Answer

Accelerate the collection of receivables and reduce float

Answer

A lockbox system directs customer payments to a bank P.O. box, allowing faster deposit processing and reducing mail and processing float.

Question 4

What is 'disbursement float' in the context of cash management?

Accepted Answer

The time between writing a check and when it clears the bank

Answer

Disbursement float is the time lag from when a check is issued to when it clears the payer's bank account, temporarily inflating the book balance.

Question 5

In a cash flow forecast, which of the following would be included under capital expenditure outflows?

Accepted Answer

Purchase of a new delivery truck

Answer

Capital expenditures are funds used to acquire long-term assets like vehicles; this represents an investing cash outflow in forecasting.

(CA) Chartered Certified Accountant Practice Test