Question

Purchase of marketable securities or short-term investments is not considered for the preparation of the cash flow statement because ______.

Options

• These are current assets

• These constitute cash equivalents

• These are intangible assets

• These are tangible assets

Answer 1

Purchase of marketable securities or short-term investments is not considered for the preparation of the cash flow statement because these constitute cash equivalents.

Explanation:

In a cash flow statement, marketable securities and short-term investments are classified as cash equivalents because they are highly liquid and can be converted into known amounts of cash almost immediately. When a company purchases these securities, it is essentially moving money from “Cash in Hand” to another form of cash. Since both items fall under the same “Cash and Cash Equivalents” category, the transaction does not represent an actual inflow or outflow of cash for the business; it is simply a movement within the cash balance.