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CMA Intermediate · Financial Management and Business Data Analytics · Fund Flow Statement - Preparation and Analysis

Which statement correctly distinguishes a fund flow statement (working capital basis) from a cash flow statement?

A fund flow statement explains why working capital changed by showing long-term sources and applications of funds, whereas a cash flow statement explains the change in cash and cash equivalents through operating, investing and financing activities. Their focus differs, so closing figures are not the same.

  1. AA fund flow statement ignores long-term sources and applications of funds
  2. BA cash flow statement is prepared only for companies with negative working capital
  3. CA fund flow statement explains the change in working capital, while a cash flow statement explains the change in cash and cash equivalentsCorrect
  4. DBoth statements start from the opening cash balance and must always show the same closing figure

Explanation

Fund flow statement focuses on movement in net current assets and long-term sources and uses. Cash flow statement explains movement in cash and cash equivalents. The other options are incorrect: fund flow includes long-term items, and the closing figures differ.

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