Cash Flow Statements is one of 9 topics in the Grade 12 Accounting CAPS syllabus, covered across 3 lessons on Study Vault. Below are real practice questions from this topic with full worked answers.
Sample practice questions
Easy
1. The Cash Flow Statement is needed mainly because:
Net profit (accrual-based) does not equal the actual cash generated by the business
The Income Statement is always inaccurate
Companies do not need a Balance Sheet if they have a Cash Flow Statement
Cash flow and net profit are always exactly equal
Answer: Net profit (accrual-based) does not equal the actual cash generated by the business — Because of the accrual basis and non-cash items like depreciation, net profit does not equal actual cash generated, so a separate statement tracking real cash movements is needed to assess liquidity.
Easy
2. Why is depreciation added back to net profit when calculating cash generated from operations?
Depreciation reduced profit but involved no actual outflow of cash
Depreciation is a cash inflow
Depreciation increases the value of the asset
Depreciation must always be subtracted twice
Answer: Depreciation reduced profit but involved no actual outflow of cash — Depreciation is a non-cash expense; it reduces accounting profit but no cash actually left the business, so it must be added back to convert profit to a cash basis.
Medium
3. An increase in trade debtors during the year, all else equal, is treated in the Cash Flow Statement as:
A cash outflow (subtracted), since more cash is tied up in amounts owed by customers
A cash inflow (added)
No effect on cash flow at all
An investing activity
Answer: A cash outflow (subtracted), since more cash is tied up in amounts owed by customers — A rise in debtors means more sales revenue has not yet been converted into cash, so it is treated as a use of cash (an outflow/subtraction) in the working capital adjustment.
