Question

Assertion (A): Cash Flow Statement shows inflow and outflow of Cash and Cash Equivalents under Operating, Investing and Financing Activities of a company during a specified period.

Reason (R): Cash Flow Statement traces the Flow of Cash and Cash Equivalents into and out of the business during an accounting period under Operating, Investing and Financing Activities.

In the context of the above two statements, which option is correct?

विकल्प

• Assertion (A) and Reason (R) are correct, but the Reason (R) is not the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).

• Assertion (A) is correct, but the Reason (R) is not correct.

• Assertion (A) is not correct, but the Reason (R) is correct.

Answer 1

Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).

Explanation:

Both statements are true because they describe the exact same purpose and mechanism of a cash flow statement. The Assertion states what the statement shows (inflows and outflows across operating, investing, and financing activities), while the Reason correctly explains why it can show this information, because its primary accounting function is to actively trace the movement of cash and cash equivalents into and out of the business across those same three categories during a period.