Which one of the following is FALSE for the Cash Flow Statement? [1 pt] (a) Beginning...

Which one of the following is FALSE for the Cash Flow Statement? [1 pt]

(a) Beginning cash + cash inflow – cash outflow = ending cash

(b) Collecting a receivable (for a previously completed transaction) increases cash inflow

(c) Delaying the collection of its receivables hurt the overall cash flow of a firm

(d) Making advance payments for purchases made by a firm improves it cash flow

(e) Net profit and ending cash do not necessarily have to be the same for a given year

Expert Solution

Statement (d) Making advance payments for purchases made by a firm improves its cash flow is FALSE for cash flow statement.

Explanation: Making advance payments for purchases made by firm will decrease its cash flow as cash will be paid earlier as opposed to expected cash disbursements for purchases made which will leave less cash in hand as budgeted.

Statement (a) is true as Ending cash is calculated as beginning cash plus Cash inflow less cash outflow.

Statement (b) Collecting receivable(for a previously completed transaction) increase cash inflow as firm will receive cash from the receivables. Therefore it is True.

Statement (c) If the firm delays the collection of receivables then firm will not have enough cash in hand on that date as expected to meet the expected cash disbursements that will hurt overall cash flow for the firm. Therefore the statement is True.

Statement (e) Net profit and ending cash do not necessarily have to be same for a given year as while calculating net profit it includes certain non cash items which are not paid in cash like depreciation or other expenses which are not paid during the year as these are outstanding or revenue which is not received during the year. Therefore statement is True.

ekkarill92 answered 1 year ago

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