Home » Costing » Assertion (A) Cash flow statement as per the financial statements as well is incapable in revealing the overall financial position of a firm. Reason (R) Cash is an important constituent of the working capital based on the recorded facts only.
Both (A) and (R) are true and (R) is the correct explanation of (A)
(A) is true, but (R) is not true
(A) is not true, but (R) is true
Both (A) and (R) are false
Answer is Wrong!
Answer is Right!
The correct
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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.