Question : Assertion (A): Non-cash transactions are not considered in preparing Cash Flow Statement.
Reason (R): Non-Cash transactions do not affect Cash and Cash Equivalents.
In the context of above two statements, which of the following is correct?
Option 1: Assertion (A) and Reson (R) are correct but the reason (R) is not the correct explanation of Assertion (A).
Option 2: Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A)
Option 3: Assertion (A) is correct but the Reason (R) is not correct
Option 4: Both, Assertion (A) and Reason (R) are not correct
Correct Answer: Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A)
Solution : Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A). Non-Cash transactions do not affect Cash and Cash Equivalents.Cash exchange processes will be impacted by cash transactions like withdrawals and investments. While non-cash transactions like the purchase or sale of a long-term asset have no impact on the cash flow.
Hence the correct answer is option 2.
