Question

T/F and explaination:

1/The cash flow statement summarizes the cash flows into and out of an entity

           True    False

2/The cash flow statement summarizes the cash flows into and out of an entity

           True    False

3/Accrual accounting is an application of the matching rule

           True    False

Answer 1

Question no 1 and question no 2 is same, so for both these questions the answer is same.

Question 1 and 2)

Answer : True.

Explanation : Cash flow statement depicts and summarizes cash inflows and outflows ( used) under mainly three types of activities, (a) operating activities, (b) Investing activities and (c) Financing activities.

The total of cash flows from operating, investing and financing activities is called net cash flow or used from the business during a specific period of time.

If net cash flow is in positive balance then it is called net cash inflow and if it is in negative balance, it is called net cash used from the business.

Question 3)

Answer : True

Explanation : As per Matching principle , to calculate net profit for a specific period, we have to only consider the revenue of that period and the associated expenditures to earn such revenues during the same period .

Cash payment made or not for those expenditures and cash received or not for revenue during that period is totally, irrelevant.

In real accounting practice, accrual basis of accounting is the perfect example of application of matching principle. Because accrual basis of accounting, consider (a) outstanding expenses and (b) Accrued income (revenue earn but not received) , but always subtract (a) prepaid expenses from expenditures and (b) advance income or unearned revenue from revenue.