CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows II
Which of the following relationships between the cash flow statement and the balance sheet is most accurate?
The total of operating, investing and financing cash flows reconciles the beginning and ending cash balances on the balance sheet. The change in cash is not the change in retained earnings, which reflects net income less dividends rather than cash movements.
- AThe net change in cash equals the change in retained earnings
- BCash from operations equals net income plus the change in equity
- CThe net change in the three activity sections reconciles beginning and ending cashCorrect
Explanation
The sum of operating, investing and financing cash flows (plus any exchange-rate effect) equals the change in cash and equivalents on the balance sheet. Retained earnings change reflects net income and dividends, not cash.
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