Professional in Human Resources (PHR) Practice Exam

What does a cash flow statement record?

1. The number of sales made in a period

2. How much cash is flowing into and out of an organization

3. Employee productivity ratios

4. Long-term financial projections

The correct answer is: How much cash is flowing into and out of an organization

A cash flow statement is a financial document that details how cash moves in and out of an organization over a specific period. It provides essential insights into an organization's liquidity, solvency, and overall financial health. By recording the cash inflows (such as revenues from sales, investments, and financing) and cash outflows (like expenses, capital expenditures, and debt repayments), it helps stakeholders understand how well a company generates cash to fund its operations, pay its debts, and invest in growth. The other options do not accurately define the primary function of a cash flow statement. While counting sales provides a measure of revenue, it does not encompass the full picture of cash movements. Employee productivity ratios focus on measuring workforce effectiveness rather than financial transactions. Finally, long-term financial projections outline future expectations and strategies, not the actual cash flows that have occurred within a given timeframe.