[amp_mcq option1=”Both (A) and (R) are true and (R) is the correct explanation of (A)” option2=”(A) is true, but (R) is not true” option3=”(A) is not true, but (R) is true” option4=”Both (A) and (R) are false” correct=”option2″]
The correct answer is: B. (A) is true, but (R) is not true
The cash flow statement is a financial statement that shows how much cash a company has received and spent over a period of time. It is important because it provides information about a company’s liquidity and solvency. However, the cash flow statement does not provide information about a company’s assets, liabilities, or equity. Therefore, it is not capable of revealing the overall financial position of a firm.
The reason (R) is not true because cash is not the only important constituent of working capital. Working capital is a measure of a company’s ability to meet its short-term obligations. It is calculated as current assets minus current liabilities. Current assets include cash, accounts receivable, inventory, and short-term investments. Current liabilities include accounts payable, short-term debt, and accrued expenses.
Therefore, a company’s working capital can be affected by factors other than cash, such as the level of its accounts receivable and inventory.