Question

1. Which of the following statements best describes the purpose of the cash flow statement?

A. To explain the sources and uses of cash during the accounting period
B. To determine the company’s profitability during the fiscal year
C. To determine the level of debt the company must finance
D. Assess the competitive risks faced by the company.

2. Which of the following statements best describes the purpose of internal controls over financial reporting?

A. To reduce the likelihood that laws and regulation will be broken
B. To increase the likelihood that Generally Accepted Accounting Principles will be followed
C. To reduce the likelihood of the company’s bankruptcy
D. To increase the likelihood that profitability will be achieved.

Answer 1

1)

The answer is option A.

The purpose of cash flow statement is explain the sources and uses of Cash during an accounting period.

The primary purpose of Cash flow Statement is to provide information on cash receipt, cash payment and net changes in cash balance by activities dividing into cash flow from operating activities , Cash flow from investng activities and cash flow from financing activities. Other options like to show profitability, Level of risk and level of debt analysis not relating to cash flow statement.

2)

The answer is option A.

The purpose of internal control over financial reporting is to reduce the likelihood that laws and regulation will be broken.

Bribes and other related transactions that will break the law and a suitable internal control can prevent a unit from these activities. Internal control are providing the realibility of financial reporting and helps to ensure that Financial statements are free from fraud and misstatements.