Cash Flow Statement Test - 2

While preparing companies balance sheet trade receivables are shown without deducting the provision for doubtful debts and it is shown in the liabilities side under Current Liabilities and Sub Head short term provisions.

Conversions of debentures into shares will not make any effect on financing activities. Because both debentures and shares are concerned with financing activities and there is no cash flow taken place.

Rent received is classified under investing activities. It should be added while calculating cash flow from investing activities.

Purchase of marketable securities will make no effect on cash and cash equivalents.

Reason: Cash going and marketable securities coming --- both are part of cash and cash equivalents. At the same time there is increase and decrease in cash and cash equivalents.

Payment of dividend is classified as financing activities. It is deducted in financing activities as its paid on share capital.

Interest paid on debentures will come under Financing Activities as bank overdraft is a financial activity.

Purchase of shares or debentures are concerned with investing activities. It means a firm is investing in other firm’s shares or debentures as an Investment.

Cash Equivalents are highly liquid assets which can be converted into cash in a very short period of time. These are as well as Cash.

After calculating cash flows from different three activities, they are added to know the net increase or decrease in cash and cash equivalents.

Decrease in the Preference Share Capital means redemption of preference shares. It is an outflow of cash and financing activity.