CASH FLOW STATEMENTS IN ACCOUNTING AND FINANCE
EXAM PAPER 2 (STANDARD LEVEL) – 40 QUESTIONS WITH
VERIFIED ANSWERS & DETAILED EXPLANATIONS | TEST
BANK 2026
COURSE NAME
Accounting and Finance – Financial Statements
LEVEL
Standard Level
SHORT INTRODUCTION
This standard-level cash flow statements paper builds on foundational knowledge
by focusing on deeper understanding of cash flow classification, adjustments,
interpretation, and analysis of financial statements. It is designed to strengthen
exam readiness through structured questions, accurate answers, and clear
explanations.
INSTRUCTIONS
• Answer all 40 questions
• Section A: Multiple Choice Questions
• Section B: Short Answer Questions
• Section C: Scenario-Based Questions
• Section D: Analytical Questions
• Each question includes an answer followed by an explanation in italics
• Suggested time: 2 hours
• Use for revision and exam preparation
, SECTION A: MULTIPLE CHOICE QUESTIONS (1–15)
1. Which of the following is included in operating activities?
A. Purchase of machinery
B. Sale of goods
C. Issue of shares
D. Loan repayment
Answer: B
Explanation Operating activities involve core business revenue-generating
transactions.
2. Which method adjusts net profit in cash flow preparation?
A. Direct method
B. Indirect method
C. Cash method
D. Budget method
Answer: B
Explanation The indirect method starts from net profit and adjusts for non-
cash items.
3. A decrease in accounts payable results in:
A. Cash inflow
B. Cash outflow
C. No effect
D. Profit increase
Answer: B
Explanation The business pays suppliers, reducing cash.
4. Increase in depreciation leads to:
A. Cash inflow
B. No cash effect
C. Cash outflow
D. Revenue increase
Answer: B
Explanation Depreciation is a non-cash expense.
5. Which activity is financing?
A. Buying stock
B. Paying wages
C. Receiving loan
D. Selling goods
Answer: C
Explanation Loans relate to financing activities.
EXAM PAPER 2 (STANDARD LEVEL) – 40 QUESTIONS WITH
VERIFIED ANSWERS & DETAILED EXPLANATIONS | TEST
BANK 2026
COURSE NAME
Accounting and Finance – Financial Statements
LEVEL
Standard Level
SHORT INTRODUCTION
This standard-level cash flow statements paper builds on foundational knowledge
by focusing on deeper understanding of cash flow classification, adjustments,
interpretation, and analysis of financial statements. It is designed to strengthen
exam readiness through structured questions, accurate answers, and clear
explanations.
INSTRUCTIONS
• Answer all 40 questions
• Section A: Multiple Choice Questions
• Section B: Short Answer Questions
• Section C: Scenario-Based Questions
• Section D: Analytical Questions
• Each question includes an answer followed by an explanation in italics
• Suggested time: 2 hours
• Use for revision and exam preparation
, SECTION A: MULTIPLE CHOICE QUESTIONS (1–15)
1. Which of the following is included in operating activities?
A. Purchase of machinery
B. Sale of goods
C. Issue of shares
D. Loan repayment
Answer: B
Explanation Operating activities involve core business revenue-generating
transactions.
2. Which method adjusts net profit in cash flow preparation?
A. Direct method
B. Indirect method
C. Cash method
D. Budget method
Answer: B
Explanation The indirect method starts from net profit and adjusts for non-
cash items.
3. A decrease in accounts payable results in:
A. Cash inflow
B. Cash outflow
C. No effect
D. Profit increase
Answer: B
Explanation The business pays suppliers, reducing cash.
4. Increase in depreciation leads to:
A. Cash inflow
B. No cash effect
C. Cash outflow
D. Revenue increase
Answer: B
Explanation Depreciation is a non-cash expense.
5. Which activity is financing?
A. Buying stock
B. Paying wages
C. Receiving loan
D. Selling goods
Answer: C
Explanation Loans relate to financing activities.
