CUET Preparation Today
Which statement is true regarding the classification of cash flows in a cash flow statement? |
It focuses only on investing activities It assesses marketing strategies It emphasizes revenue generation It highlights the effects of various activities on cash and cash equivalents |
It highlights the effects of various activities on cash and cash equivalents |
The correct answer is option 4- It highlights the effects of various activities on cash and cash equivalents. The classification of cash flows in a cash flow statement highlights the effects of various activities on cash and cash equivalents.
The various activities of an enterprise result into cash flows (inflows or receipts and outflows or payments) which is the subject matter of a cash flow statement. As per AS-3, these activities are to be classified into three categories: (1) operating, (2) investing, and (3) financing activities so as to show separately the cash flows generated (or used) by (in) these activities. This helps the users of cash flow statement to assess the impact of these activities on the financial position of an enterprise and also on its cash and cash equivalents. |
