Multiple Choice Questions (CFS)

This activity contains 12 questions.

Question 1.
Which of the following involves a movement of cash?
A. Creation of a provision for pensions
B. Depreciation of fixed assets
C. A rights issue
D. A bonus issue
Question 2.
Which one of the following events will increase the cash balances of a business?
A. Sale of stock on credit
B. Loan repayment to banks
C. Bank granting it an overdraft facility
D. Debtors paying amounts owed
Question 3.
Which one of the following events will reduce the cash balances of a business?
A. Purchase of fixed assets on interest free credit
B. Dividend proposed pending shareholder approval
C. Purchase of stock on credit
D. Creditors paid amounts owed
Question 4.
Which one of the following is false?
A. A profitable company will never run out of cash
B. If cash outflows exceed cash inflows on an ongoing basis, the business will
eventually run out of cash
C. Cash is the lifeblood of a business and without it the business will die
D. Rapidly expanding companies can sometimes face a cash shortage
Question 5.
A company with healthy profits is facing a cash shortage. Which of the following events
could account for this?
A. The shortening of the credit period granted to debtors
B. The recent acquisition of equipment
C. An increase in dividends proposed by the directors
D. Delaying payments to creditors
Question 6.
Which one of the following companies is most likely to run into cash flow problems?
A. A profitable new retailer about to embark on ambitious expansion plans
B. A loss making company making components of vital strategic importance to
the government?
C. A company which has recently sold part of its operations so as to concentrate
on its core areas
D. A reasonably profitable, long established company with no expansion plans

Question 7.
What is the immediate effect of making a rights share issue?
A. On profit - Increase; On cash - Decrease
B. On profit - Increase; On cash - Increase
C. On profit - Decrease; On cash - Increase
D. On profit - None; On cash - Increase
Question 8.
What is the immediate effect of making a capital repayment on a loan on cash flow and
profits?
A. On profit - Decrease; On cash - None
B. On profit - None; On cash - Decrease
C. On profit - Increase; On cash - Decrease
D. On profit - Decrease; On cash - Decrease
Question 9.
A business may incur an operating loss in a given financial year yet has more cash in the bank
at the end. A reason for this could be that:
A. Debtors were allowed a longer period of credit
B. Payments to creditors were made more promptly
C. Dividends paid were higher this year than last
D. Some fixed assets were sold for cash
Question 10.
A company has a negative cash flow from operating activities. What could explain this
negative cash flow?
A. High levels of dividend payments
B. A sudden increase in credit sales
C. A substantial investment in new fixed assets
D. The repayment of a loan
Question 11.
FRS 1 (Cash flow statements) requires that cash receipts and payments should be analysed
into eight categories. Under which category would you expect to find the cash proceeds from
a share issue?
A. Taxation
B. Financing activities
C. Operating activities
D. Returns from investment and servicing of finance
Question 12.
In an IAS 7 Statement of Cash Flows where would you find a bank current account debit
balance?
A. In operating activities
B. In financing activities
C. In investing activities
D. In cash and cash equivalents