CLFP Financial And Tax Accounting For Leases Practice Exam

Which statement correctly defines negative cash flow?

Cash received (income) > cash paid (expenses) Cash received (income) < cash paid (expenses) Cash received equals cash paid Cash flow is not related to expenses

Correct Answer:

Cash received (income) < cash paid (expenses)

Explanation:

Negative cash flow means more cash is leaving the business than coming in during the period. It occurs when cash received (income) is less than cash paid (expenses and other outflows). For example, if a company collects 40,000 in lease income but pays 60,000 in operating expenses, debt service, and other costs, the net cash flow is -20,000. If cash received equals cash paid, the net cash flow is zero, not negative. And cash flow is directly related to expenses because payments reduce cash on hand and affect the overall cash position.

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