CS Executive · Corporate Accounting and Financial Management · Cash Flows
Under AS 3 / Ind AS 7, which of the following correctly describes 'cash flows'?
Cash flows are inflows and outflows of cash and cash equivalents. The definition covers movements in both directions and is not limited to operating activities, profit figures or working capital changes. It is the basic term on which the whole cash flow statement is built.
- AInflows and outflows of cash and cash equivalentsCorrect
- BOnly the inflows of cash arising from operating activities
- CNet profit adjusted for non-cash items and provisions
- DChanges in all current assets and current liabilities during the year
Explanation
The standards define cash flows as inflows and outflows of cash and cash equivalents. Both directions are covered, and they are not limited to operating activities. Profit adjusted for non-cash items is only a step in the indirect method, and working capital changes are not the definition.
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